THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 


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GOVERNMENT    REGULATION    OF 
RAILWAY    RATES 


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GOVERNMENT   REGULATION 

OF 

RAILWAY  RATES 


A    STUDY    OF    THE    EXPERIENCE    OF    THE    UNITED 
STATES,   GERMANY,   FRANCE,   AUSTRIA-HUN- 
GARY,  RUSSIA  AND   AUSTRALIA 


BY 


HUGO   RICHARD   MEYER 

ASSISTANT  PROFESSOR   OF  POLITICAL   ECONOMY 
IN  THE  UNIVERSITY   OF   CHICAGO 


THE   MACMILLAN    COMPANY 

LONDON:  MACMILLAN  &  CO.,  Ltd. 

1905 

AH  rights  reserved 


COPYWGHT,   1905, 

By  the  MACMILLAN  COMPANY. 


Set  up  and  electrotyped.     Published  September,  190$. 


KartoooD  J^tnt 

J.  S.  Cashing  &  Co.  —Berwick  &  Smith  Co. 

^forwood,  Mftss.,  U.S.A. 


Buis.  Admiu. 
library 

M07 


TO    MY    FATHER 


155S831 


PREFACE 

This  book  presents  the  conclusions  forced  upon  the 
author  by  a  painstaking  study  of  the  railway  question 
extending  over  some  twelve  years.  That  study  began 
with  an  inquiry  into  the  results  of  State  industrial 
ventures  in  Australasia,  which  he  took  up  with  a 
strong  bias  in  favor  of  State  intervention  in  industry. 
As  many  of  the  most  impressive  lessons  to  be  learned 
from  the  industrial  experiments  of  the  Australasian 
States  are  connected  with  their  management  of  rail- 
ways, the  author  was  naturally  led  to  make  com- 
parisons with  the  railways  of  other  countries,  over 
which  the  various  governments  have  exercised  some 
measure  of  control.  The  net  result  has  been  the 
disclosure  of  such  overwhelming  proofs  of  the  evils 
of  State  direction  of  industry,  or  interference  with  its 
natural  course,  that  he  has  become  firmly  convinced 
of  the  unwisdom  of  government  regulation  of  rail- 
ways or  their  rates. 

The  book  appears  at  the  present  time  because  of 
the  possibility  that  Congress,  influenced  by  the  dis- 
content that  exists  in  some  sections  of  the  country 
because  of  the  friction  necessarily  incident  to  the 
transaction  of  the  complicated  business  of  transporta- 


viii  PREFACE 

tion,  may  be  led  to  enact  ill-considered  laws  granting 
dangerously  enlarged  power  to  the  Interstate  Com- 
merce Commission.  In  the  discussion  of  this  radical 
departure  from  the  regime  of  individualism  and 
industrial  freedom  under  which  the  United  States 
has  attained  its  crowning  position  in  manufacture 
and  commerce,  too  little  attention  has  been  paid 
to  the  lessons  that  might  be  learned  from  the  ex- 
perience of  nations  which  have  adopted,  in  greater 
or  less  degree,  a  policy  of  government  control  of 
transportation. 

It  seems  imperative,  therefore,  that  attention  be 
called  to  the  effect  of  such  government  control 
abroad,  to  the  part  which  the  railroads  have  played 
in  the  industrial  development  of  this  country,  and 
particularly  to  the  attitude  of  the  Commission  upon 
questions  of  railroad  practice  which  are  of  funda- 
mental importance  in  the  shaping  of  our  industrial 
future.  A  fair  consideration  of  these  facts  and  of 
the  conditions  under  which  the  railroads  must  oper- 
ate to  secure  their  greatest  efficiency  compels  the  con- 
clusion that,  whatever  evils  now  exist,  none  of  them 
are  at  all  commensurate  with  the  harm  which  must 
result  from  bestowing  the  power  to  fix  railway  rates 
upon  the  Interstate  Commerce  Commission. 

Under  these  conditions  this  book  is  published  be- 
fore the  author  has  been  able  to  carry  out  his  plans 
for  securing  additional  information,  for  bringing  all 
statistics  down  to  date  and  for  a  more  careful  ar- 


PREFACE  ix 

rangement  of  the  materials  already  at  hand.  Further 
delay  in  publication  might  have  made  the  book  more 
complete  in  detail  and  more  readable,  but  would  not 
have  modified  the  conclusions.  The  usefulness  of 
the  book  must,  however,  depend  far  less  upon  form 
than  substance ;  and  the  author  hopes  that  the  facts 
here  presented  may  be  of  service  in  the  present  con- 
troversy. 

The  author  desires  to  make  acknowledgment  of 
indebtedness  to  The  Railway  Age  for  permission  to 
republish  the  chapters  dealing  with  the  experience 
of  Austria-Hungary,  Russia  and  Australia,  which 
appeared  originally  as  part  of  a  series  of  articles  in 
that  journal  between  July  lo  and  October  9,  1903, 
and  to  The  Railroad  Gazette  for  permission  to  include, 
in  much  extended  form,  an  article  on  "  Rate  Making 
by  Government,"  which  was  published  in  its  issue 
of  May  12,  1905. 


CONTENTS 

PAGE 

Introduction xvii 

Police  measures  are  required  —  not  government-made 
rates.  Tlie  railways  our  greatest  promoters  of  trade. 
Why  th6  Supreme  Court  has  overruled  the  Commission. 

PART   I 

GERMANY,  FRANCE,  AUSTRIA-HUNGARY,  THE  DAN- 
UBIAN  PRINCIPALITIES,  RUSSIA  AND  VICTORIA 
AND  NEW  SOUTH  WALES,  AUSTRALIA 

CHAPTER   I 

The  Conflict  of  Local  Interests 3 

The  inherent  defect  of  distance  tariffs.  Sectional  in- 
terests and  grain  rates.  The  conflict  over  sugar  rates. 
The  arrested  development  of  the  iron  and  steel  industry. 
Localization  of  trade  and  industry. 

CHAPTER    II 

Local  and  Personal  Discrimination  ....  34 
The  Rhine  supplants  the  railway.  The  Elbe  conquers 
the  railway.  Stettin  versus  Hamburg.  The  Oder  relieves 
Silesia.  Waterways  gain  upon  the  railways.  Industrial 
Germany  dependent  on  the  waterways.  Discrimination 
against  points  not  on  waterways.  Bremen  loses  the 
petroleum  trade.  Mannheim  becomes  a  great  trade  centre. 
Government  control  concentrates  trade  and  population. 
Discrimination  in  favor  of  large  shippers.  Water  trafific 
means  personal  discrimination. 


XU  CONTENTS 

CHAPTER   III 

PAGE 

Railway  Revenue  and  Technical  Efficiency  .  .  69 
Politics  and  railway  revenue.  The  government  versus 
the  people.  The  inefEciency  of  the  railways.  The  rail- 
ways as  mere  feeders  to  waterways.  Political  versus 
commercial  rate-making.  Cost  of  transportation  not  re- 
duced.    Government  control  means  distance  tariff. 

CHAPTER   IV 

The  Recent  Canal  Bills 93 

Railways  contribute  little  to  industrial  growth.  Demand 
for  cheaper  transportation  to  be  met  by  new  canals.  Re- 
appearance of  sectional  conflicts.  Transportation  questions 
and  party  politics.  The  canal  question  and  customs  duties. 
Legislative  rate-making  politically  disastrous.  Berlin  to 
remain  more  remote  from  the  Rhine  than  from  New  York. 
River  and  canal  transportation  not  cheaper  than  rail. 

CHAPTER  V 

France 123 

Government  control  results  in  inelastic  rates.  Water- 
ways gain  on  railways.  River  and  canal  traflSc  burden 
the  taxpayer. 

CHAPTER   VI 

Austria-Hungary  and  the  Danubian  Provinces  .  .  133 
Prussia  refuses  to  promote  transcontinental  traffic.  Aus- 
trian practice  liberalized  by  competition  of  private  com- 
panies. Hungary-  makes  railway  rates  a  tariff  barrier. 
Vain  efforts  of  Germany  to  reach  eastern  markets  by  rail. 
National  jealousies  prevent  railway  traffic  with  the  East. 
Cost  to  the  Rumanian  farmer  of  deficient  railway  service. 
Failure  to  develop  the  Carpathian  oil  trade.  Hungarian 
waterways  vainly  compete  with  American  railways.    Farm- 


CONTENTS  xiii 


ers  and  consumers  suffer  from  lack  of  progressive  railways. 
Traffic  which  invites  cooperation  of  European  states  in 
railway  development. 

CHAPTER   VII 

Russia 163 

Sectional  issues  appear  in  Russian  railway  management. 
Development  of  agriculture  in  eastern  Russia  prevented. 
Prohibitive  rates  on  Siberian  wheat.  Need  of  American 
railway  rate  practices.  Proof  that  Siberia  would  respond 
to  the  stimulus  of  low  railway  rates.  Rapid  adjustment 
to  new  conditions  in  the  United  States.  Government 
regulation  drives  traffic  to  the  waterways.  The  producer's 
interest  demands  that  the  railways  supersede  the  waterways. 


CHAPTER  VIII 

Australia 189 

Trade  rivalries  among  the  colonies.  Competition  of 
the  ports  threatened  to  defeat  federation.  Tapering 
rates  concentrate  trade  and  population  on  the  coast.  De- 
centralization encouraged  by  the  basing-point  system  in 
the  United  States.  The  economy  of  the  basing-point 
system. 

PART  II 

THE   UNITED   STATES 

CHAPTER   I 

The  Development  of  the  West 203 

Rise  of  the  western  farmer.  Industrial  readjustment 
aided  by  the  railways.  Western  farm  products  conquer 
European  markets.  The  industrial  East  dependent  on 
the  agricultural  West. 


XIV  CONTENTS 

CHAPTER   II 

FAGS 

The  Protest  against  the  Growing  Pains  of  Progress  216 
Eastern  farmers  demand  the  distance  tariff  on  western 
farm  produce.  New  York  City  protests  against  the  rise  of 
Philadelphia  and  Baltimore.  New  York  City  protests 
against  the  rise  of  interior  jobbing  centres.  New  York 
State  demands  the  distance  tariff  against  the  West.  Com- 
petition of  Atlantic  ports  reduces  railway  rates.  State 
commissions  regulate  railways  to  protect  state  industries. 
Railways  regulate  rates  to  promote  freedom  in  trade. 

CHAPTER   III 

The  Workings  of  Competition 242 

Protests  against  the  development  of  Duluth.  The  Chi- 
cago railways  fight  for  Chicago.  The  rise  of  the  Gulf 
ports.  The  competition  for  the  markets  promotes  railway 
efficiency.  Factors  controlling  the  farm  price  of  grain. 
The  Interstate  Commerce  Commission  versus  the  western 
farmers.  Unsound  economic  reasoning  of  the  Commis- 
sion. New  Orleans  demands  the  distance  tariff  on  cotton. 
Texas  seeks  indirectly  to  regulate  interstate  commerce. 
The  United  States  contrasted  with  Germany.  The  United 
States  escapes  Germany's  unhappy  experience.  American 
politics  not  unlike  German. 

CHAPTER   IV 

The  Adjustment  of  Railway  Rates        ....    280 

Nice  adjustment  of  American  farm  prices  to  Liverpool 
prices.  Competition  of  markets  in  the  cattle  business. 
Traffic  associations  regulate  competition.  The  basing- 
point  system  at  the  South.  The  Interstate  Commerce 
Commission  versus  the  interior  jobbing  points.  The 
economy  of  the  basing-point  system.  The  interdepen- 
dence of  railway  rates.  Charging  what  the  traffic  will  bear. 
Struggle  of  the  Atlantic  seaboard  and  the  central  West 
for  trade  with  southeastern  states.     The  West  illustrates 


CONTENTS  XV 

PAGE 

the  complexity  of  the  problem.     Chicago  and  St.  Louis 
versus  the  Pacific  coast.     "  Natural  rights  "  to  trade. 

CHAPTER   V 

The  Decisions  of  the  Interstate  Commerce  Commis- 
sion—  Export  and  Import  Rates       .        .        .        -319 

New  York  City  versus  the  western  farmer.  Character- 
istic attitude  of  the  Commission.  The  Commission  and 
the  Russian  bureaucracy  on  common  ground.  The  Com- 
mission verstis  Philadelphia,  Baltimore  and  New  Orleans. 
The  Supreme  Court  overrules  the  Commission.  Congress 
did  not  intend  to  throttle  trade.  The  Commission's  order 
in  effect  a  law  of  wide  import.  How  the  Gulf  ports  are 
being  built  up.  The  Commission  versus  the  western  farmer. 
"  Theories  of  social  progress"  versus  conditions  and  facts. 

CHAPTER   VI 

The  Decisions  of  the  Interstate  Commerce  Commis- 
sion (continued)  —  The  Long-and-short-haul 
Clause 359 

The  Commission  ignores  the  spirit  of  the  law,  to  follow 
the  letter.  The  "folly"  of  making  perplexing  problems 
for  the  Commission.  The  doctrine  that  distance  must 
not  be  annihilated.  The  carriers  are  the  best  judges  of 
rates.  When  competition  justifies  a  lower  rate  on  the 
longer  haul. 

CHAPTER   VII 

The  Decisions  of  the  Interstate  Commerce  Commis- 
sion (continued)  —  The  Doctrine  that  no  Place 
may  be  deprived  of  the  Advantages  accruing  to 
it  by  Virtue  of  its  Geographical  Position    .        .    380 

The  Commission  tries  to  preserve  monopolies  due  to 
location.  Group  rates  build  up  the  largest  creamery  in 
the  world.  Group  rates  extended  to  southern  truck  farm- 
ers. Group  rates  in  the  Northwest  condemned  by  the 
Commission.  The  Commission  discriminates  against 
trans-Mississippi  grain. 


XYi  CONTENTS 

CHAPTER  VIII 

PAGE 

The  Decisions  of  the  Interstate  Commerce  Commis- 
sion (concluded)  —  Pandora's  Box    ....    397 

Relative  prosperity  regulated  by  a  distance  tariff.  The 
bitterness  of  local  jealousies.  Opposition  to  the  westward 
trend  of  industry.  "  Reasons  "  for  discrimination  by  the 
Commission  against  Michigan  salt.  The  menace  to  trade 
implied  in  regulation  of  competition.  The  distance  tariff 
versus  the  basing-point  system  in  transcontinental  traffic. 
The  central  West  demands  distance  tariff  for  southern 
trade.  Assumption  of  dispensing  power  by  the  Commis- 
sion.    Regulation  by  men,  not  by  law. 

CHAPTER   IX 

The  Port  Differentials 440 

The  Commission's  cost  of  service  theory  breaks  down. 

CHAPTER  X 

Summary  and  Conclusion 449 

The  problem.  Prussia  paralyzes  the  railways.  The 
governments  of  Europe  refuse  to  promote  interstate  com- 
merce. Russia  paralyzes  the  Siberian  Railway.  Aus- 
tralia's lesson.  Government-made  rates  concentrate  trade 
and  promote  discrimination.  Government-made  rates 
must  be  machine-made.  Discrimination  the  secret  of 
efficiency  of  American  railways.  The  Supreme  Court's 
doctrine  of  railway  rates.  The  carriers  best  qualified  to 
adjust  railway  rates.  Unjust  rates  not  numerous.  Existing 
unjust  rates  not  made  in  bad  faith.  Power  to  condemn  a 
rate  is  sufficient.  Prompt  relief  attainable  under  present 
law.  Real  nature  of  the  demand  for  power.  The  demand 
for  amendment  of  long-and-short-haul  clause.  The  power 
to  fix  a  minimum  rate.  Government-made  rates  would 
restrict  competition  and  trade.  The  significance  of  Boston 
and  Albany  versus  Boston  and  Lowell. 

Index 473 


INTRODUCTION 

The  problem  of  the  public  regulation  of  railway 
rates  is  threefold.  It  involves:  first,  the  question 
of  personal  discriminations  by  means  of  secret  de- 
partures from  the  published  rates;  secondly,  the 
question  of  the  reasonableness  of  rates  per  se;  and, 
lastly,  the  question  of  the  relative  reasonableness  of 
rates.  Lack  of  space  compels  the  dismissal  of  the 
first  and  second  questions  with  a  few  brief  statements. 

As  to  personal  discrimination,  it  is  clear  that  to 
have  the  Federal  Government,  or  its  agent,  the  Inter- 
state Commerce  Commission,  exercise  the  power  to 
make  railway  rates,  would  in  no  way  prevent  secret 
rebates.  The  railways  would  find  it  no  more  diffi- 
cult to  depart  secretly  from  rates  made  by  the  Gov- 
ernment, or  its  agent,  than  they  have  found  it  to 
depart  secretly  from  rates  made  by  themselves.  On 
the  other  hand,  the  railway  companies  would  often  be 
under  much  greater  pressure  to  depart  from  the 
rates  made  by  the  Government  than  they  would  be  to 
depart  from  those  made  by  themselves ;  for  it  is  the 
verdict  of  all  experience  that  Governments  will  not, 
and  cannot,  make  railway  rates  that  will  meet  the 
needs    of    expanding    trade    and    industry.     Some 


-will  RAILWAY   RATES 

astounding  chapters  from  that  experience  will  be 
found  in  the  following  pages. 

The  second  problem,  that  of  the  reasonableness 
of  rates  per  se,  has  all  but  disappeared  in  the  United 
States.  The  Annual  Report  for  1898  of  the  Inter- 
state Commerce  Commission  contains  the  statement : 
"It  is  true,  as  often  asserted,  that  comparatively  few 
of  our  railway  rates  are  unreasonable  in  and  of  them- 
selves —  that  is,  without  reference  to  other  charges 
made  by  the  same  carrier,  or  to  those  of  other  car- 
riers. .  .  .  The  cases  are  exceedingly  rare  in  which 
unreasonableness  has  been  found  merely  from  the 
amount  of  the  rate  itself  as  laid  upon  the  particular 
traffic  and  the  distance  it  was  carried."  In  ]March, 
1898,  the  Chairman  of  the  Interstate  Commerce  Com- 
mission testified  before  the  Senate  Committee  on 
Interstate  Commerce  that  the  question  of  excessive 
railroad  charges  —  "that  is  to  say,  railroad  charges 
which  in  and  of  themselves  are  extortionate  —  is 
pretty  much  an  obsolete  question."  It  is  true  that  a 
great  deal  has  been  made  of  the  increases  in  railway 
freight  charges  made  by  the  railway  companies  in 
1900  and  the  subsequent  years;  and  it  has  been  al- 
leged that  the  increase  in  the  average  receipts  per 
ton-mile  of  freight  carried,  from  0.724  cent  in  1899 
to  0.757  c^^t  in  1902,  and  to  0.763  cent  in  1903,  com- 
pels the  conclusion  that  there  is  danger  lest  the  re- 
cent consolidations  of  railways  result  in  extortionate 
charges.      President    Hadley,    of   Yale    University, 


INTRODUCTION  xix 

after  considering  the  evidence,  expressed  him- 
self upon  this  point  as  follows:*  *'It  is,  I  think, 
clear  that  the  tendency  for  creating  artificial  mo- 
nopolies in  railroad  business  (as  distinct  from  that 
inevitable  monopoly  which  is  due  to  the  needs  of 
concentrated  service)  has  not  been  so  great  as  in 
many  other  lines  of  industry  during  the  last  decade; 
and  that  railroad  monopoly  should,  under  these  cir- 
cumstances, not  be  treated  as  a  thing  repugnant  to 
general  business  usage,  but  as  a  part  of  the  indus- 
trial system  of  the  country.  ...  I  believe  also  that 
there  has  been  far  less  of  extortionate  profit  in  con- 
nection with  railroad  monopoly  than  has  been  inci- 
dent to  most  other  kinds  of  industrial  combination. 
While  a  figure  of  $560,000,000  of  net  earnings  for 
1902  or  of  $590,000,000  for  1903  looks  large  when 
taken  by  itself,  it  must  be  remembered  that  these 
earnings  represent  an  income  on  an  investment  of 
more  than  $10,000,000,000  of  capital. f  And  it  must 
be  remembered  that,  as  against  these  two  good  years, 

*  Boston  Evening  Transcript,  April  I,  1905;  reprinted  in  Hearings 
before  the  Committee  on  Interstate  Commerce,  United  States  Senate,  May  9, 
1905. 

+  In  a  footnote  Mr.  Hadley  adds :  "  The  nominal  figure  of  capital  stock 
and  bunded  debt  for  the  206,000  miles  of  railroad  in  the  United  States  is 
about  $13,000,000,000.  Very  considerable  parts  of  these  stocks  and  bonds 
are,  however,  represented  by  unissued  securities  held  in  the  treasuries  of 
companies,  which  would  probably  reduce  the  figure  of  outstanding  capi- 
talization to  a  point  between  Si  1,000,000,000  and  $12,000,000,000.  How 
much  of  this  last-named  amount  is  '  water '  is  a  matter  of  opinion,  on 
which  it  will  be  impossible  to  arrive  at  a  definite  result.  But  taking  the 
railroads  of  the  United  States  as  we  see  them,  I  am  confident  that  it  would 
be  quite  out  of  the  question  to  duplicate  them  for  an  average  of  $50,000  a 
mile  ;  and  this  figure  applied  to  the  whole  system  would  represent  a  legiti- 
mate cost  of  at  least  $10,300,000,000." 


XX  RAILWAY   RATES 

where  the  roads  have  earned  5.5  per  cent,  there  was 
a  whole  series  of  bad  years  from  1893  to  1898,  when 
they  were  earning  only  3.5  per  cent;  and  that  these 
profits  represent  only  the  apparent  net  earnings  — 
not  the  sum  actually  paid  out  in  interest  and  divi- 
dends, which  is  considerably  smaller." 

"It  seems  also  clear  that  the  increase  in  average 
rates  is  apparent  only  and  not  real.  If  the  price  of 
goods  carried  and  wages  of  railroad  laborers  and  the 
cost  of  materials  of  railroad  construction  and  opera- 
tion have  increased  from  10  to  40  per  cent,  an  in- 
crease of  apparent  charge  of  5  per  cent  on  the  part 
of  the  railroads  is  virtually  a  tremendous  and  gratify- 
ing decrease.  ..."  In  other  words,  Mr.  Hadley 
found  that,  as  a  whole,  the  increases  made  in  1900 
and  the  subsequent  years  come  clearly  within  the 
statement  made  in  the  Annual  Report,  for  1903,  of 
the  Interstate  Commerce  Commission:  "When  re- 
ductions in  railway  rates  have  been  made  on  account 
of  commercial  depression,  it  is  difficult  to  see  why 
corresponding  advances  may  not  properly  be  made 
with  the  return  of  business  prosperity." 

This  preliminary  discussion,  then,  may  be  sum- 
marized in  the  statements  that  the  evil  of  personal 
Police  Measures  discriminations  by  means  of  secret  re- 
are  required—  batcs  calls  for  such  poHce  regulations 
not  Gox'ernment-  ^s  are  Contained  in  the  so-called  Elkins 
law,  and  not  for  the  exercise  by  the 
Government  of  the  power  to  make  rates;   and  that 


INTRODUCTION  XXI 

there  neither  has  been,  nor  is  now,  any  such  charging 
of  extortionate  rates  as  would  warrant  the  Govern- 
ment in  assuming  the  power  to  prescribe  rates. 

Let  us  turn,  then,  to  our  subject  proper  —  the 
question  whether  the  Government  should  exercise 
the  power  to  prescribe  railway  rates,  for  the  purpose 
of  guaranteeing  the  relative  reasonableness  of  the 
rates  made  by  the  railways  leading  from  rival  pro- 
ducing and  distributing  centres  to  common  markets 
and  to  rival  markets.  To  this  question  the  answer 
of  all  experience  is :  Every  effective  effort  to  regulate 
railway  rates  in  general  will  arrest  the  decline  of 
rates,  by  producing  a  dead-lock  of  conflicting  sec- 
tional interests,  will  prevent  the  railways  from  de- 
veloping a  volume  of  traffic  sufficiently  large  to  justify 
the  maintenance  or  the  building  of  railways  of  the 
highest  attainable  efficiency,  will  check  the  develop- 
ment of  the  resources  of  the  country  and  will  demoral- 
ize the  politics  of  the  country. 

It  may  be  objected  that  we  have  had  in  this  coun- 
try much  regulation  of  railway  rates,  by  State  Com- 
missions as  well  as  by  a  Federal  Commission,  and 
that  none  of  these  evil  results  have  appeared.  The 
reply  is  that  the  Constitution  of  the  United  States 
and  the  Supreme  Court  of  the  United  States  have 
thus  far  protected  us  from  what  would  have  become 
disastrous  regulation  by  State  legislatures,  State  rail- 
road commissions  and  the  Interstate  Commerce 
Commission.    Very   nearly   every   State   legislature 


xxil  RAILWAY   RATES 

and  State  railroad  commission  that  has  pursued  an 
aggressive  poHcy  has  proceeded  all  but  exclusively 
on  these  two  considerations :  that  rates  must  be  ad- 
justed on  the  basis  of  the  distance  tariff,  and  that 
the  trade  and  industry  of  its  State  must  be  protected 
against  competition  from  the  trade  and  industry 
of  other  States.  That  the  results  have  not  been 
so  disastrous  as  to  become  apparent  to  all,  is 
due  to  the  fact  that  the  Federal  Constitution 
limits  the  activity  of  State  legislatures  and  State 
commissions  to  intra-State  traffic.  The  Inter- 
state Commerce  Commission  has  condemned  nearly 
every  one  of  the  rate  practices  by  which  the  rail- 
ways have  knit  our  vast  territory  into  the  most 
compact  trading  body  in  the  world  and  have  forced 
the  development  of  our  resources,  until  our  country 
has  become  to  Europe  a  source  of  wonder  and 
despair. 

In  Continental  Europe  the  regulation  of  railway 
rates  by  public  authority  has  reduced  the  rail- 
The  Railways  way  manager  largely  to  a  man  who 
our  Greatest  Pro-  sits  in  his  office  and  orders  his 
moters  of  Trade  subordinates  to  run  trains  back  and 
forth.  In  America  the  absence  of  restriction  upon 
the  railway  manager  —  beyond  that  imposed  by 
the  common  law  —  has  allowed  the  American  railway 
manager  to  become  the  most  powerful  single  factor 
in  our  national  life  for  the  discovery  and  the  develop- 
ment of  the  resources  of  our  country,  and  the  pro- 


INTRODUCTION  xxiii 

motion  of  trade  and  industry.  To  promote  the 
settlement  of  vast  stretches  of  unoccupied  lands, 
and  to  find  ever  new  resources  to  develop  within 
the  territory  already  occupied,  has  for  half  a  cen- 
tury been  the  main  business  of  the  American  railway 
manager.  The  imagination  displayed  by  the  Ameri- 
can railway  manager  in  discovering  potentialities 
of  industry  and  trade,  and  in  converting  those  poten- 
tialities into  actualities,  has  been  equal  to  the  highest 
flights  of  imagination  of  the  great  inventors  and  sci- 
entists ;  while  the  boldness  with  which  he  has  sought 
to  realize  his  ''visions"  has  rivalled  that  of  the  great 
soldiers  and  statesmen.  And  this  American  railway 
manager,  who,  though  holding  no  public  office,  has 
been  a  builder  of  empires,  the  Interstate  Commerce 
Commission  would  confine  to  the  mechanical  task 
of  running  trains  back  and  forth  for  the  purpose  of 
carrying  such  freight  as  can  be  moved  under  a  system 
of  railway  rates  that  takes  no  cognizance  of  "com- 
mercial considerations."  For  his  guidance  it  would 
set  up  the  monstrous  doctrine  that  to  every  producer 
and  trader  must  be  conserved  the  advantages 
''accruing  to  him  by  virtue  of  his  geographical  posi- 
tion"—  in  other  words,  the  doctrine  that  no  pro- 
ducer or  trader  may  be  relieved  of  the  disability 
under  which  he  labored  by  virtue  of  his  geographical 
position  in  the  days  before  the  railroad  had  annihi- 
lated distance. 
The  Supreme  Court  of  the  United  States,  however, 


xxiv  RAILWAY  RATES 

construing  the  Act  to  Regulate  Commerce  in  ac- 
T^zi  .1  c  ^         cordance  ''with  the  genius  of  our  in- 

IVAy  the  Supreme  o 

Court  has  cn>er-  stitutions,"  has  held  that  that  act  was 
ruled  the  Com-  enacted  "to  promote  and  facilitate 
mission  commerce,  not  to  hamper  or  destroy 

it,"  and  therefore  has  overruled  the  Interstate  Com- 
merce Commission,  time  and  again,  on  questions  of 
law,  as  well  as  on  questions  of  fact.  The  Interstate 
Commerce  Commission  has  construed  the  Act  to 
Regulate  Commerce,  and  has  weighed  the  evidence 
on  which  have  turned  questions  of  fact,  not  in  ac- 
cordance with  the  established  law  of  this  country,  or 
with  the  spirit  of  its  institutions,  but  in  accordance 
with  what,  in  its  Annual  Reports  to  the  Senate  and  the 
House  of  Representatives,  it  has  been  pleased  to  call 
"theories  of  social  progress."  For  these  "theories 
of  social  progress"  the  Supreme  Court  could  find 
no  warrant  either  in  the  letter  of  the  law  or  in  the 
spirit  of  our  institutions.  Therefore  it  has  overruled 
the  Interstate  Commerce  Commission  on  questions 
of  law,  as  well  as  on  questions  of  fact ;  and  therefore, 
also,  it  has  not  hesitated  to  add  its  emphatic  disap- 
proval of  the  public  policy  underlying  "the  theories 
of  social  progress"  which  the  Interstate  Commerce 
Commission  had  sought  to  make  into  the  law  of 
our  country,  by  assuming  that  Congress  had  con- 
ferred upon  it  the  legislative  power  to  make  railway 
rates  —  that  is,  the  power  not  only  to  judge  the  facts 
in  accordance  with  the  established  law,  but  also  to 


INTRODUCTION  xxv 

make  and  to  change  that  law  in  accordance  with 
such  "theories  of  social  progress"  as  it  has  evolved 
from  time  to  time. 

The  construction  which  the  Supreme  Court  of  the 
United  States  has  put  upon  the  Act  to  Regulate  Com- 
merce is  that, ''  subject  to  the  two  leading  prohibitions 
that  their  charges  shall  not  be  unjust  or  unreasonable, 
and  that  they  shall  not  unjustly  discriminate  so  as  to 
give  undue  preference  or  disadvantage  to  persons  or 
traffic  similarly  circumstanced,  the  act  to  regulate 
commerce  leaves  common  carriers,  as  they  were  at 
the  common  law,  free  to  make  special  rates  looking  to 
the  increase  of  their  business,  to  classify  their  traffic, 
to  adjust  and  apportion  their  rates  so  as  to  meet  the 
necessities  of  commerce  and  of  their  own  situation 
and  relation  to  it,  and  generally  to  manage  their  im- 
portant interests  upon  the  same  principles  which  are 
regarded  as  sound,  and  are  generally  adopted,  in  other 
trades  and  pursuits.  The  carriers  are  better  quali- 
fied to  adjust  such  matters  than  any  court  or  board  of 
public  administration;  and,  within  the  limitations 
suggested,  it  is  safe  and  wise  to  leave  to  their  traffic 
managers  the  adjusting  of  dissimilar  circumstances 
and  conditions  to  their  business." 

"The  last  sentence  in  this  extract  is  objected  to  by 
the  Commission's  counsel,  as  declaring  that  the  deter- 
mination of  the  extent  to  which  discrimination  is 
justified  by  circumstances  and  conditions  should  be 
left  to  the  carriers.     If  so  read,  we  should  not  be 


xxvi  RAILWAY  RATES 

ready  to  adopt  or  approve  such  a  position.  But  we 
understand  the  statement,  read  in  the  connection  in 
which  it  occurs,  to  mean  only  that,  when  once  a  sub- 
stantial dissimilarity  of  circumstances  and  conditions 
has  been  made  to  appear,  the  carriers  are,  from  the 
nature  of  the  question,  better  fitted  to  adjust  their 
rates  to  suit  such  dissimilarity  of  circumstances  and 
conditions  than  courts  or  commissions;  and  when 
we  consider  the  difficulty,  the  practical  impossibility 
of  a  court  or  a  commission  taking  into  view  the  vari- 
ous and  continually  changing  facts  that  bear  upon 
the  question,  and  intelligently  regulating  rates  and 
charges  accordingly,  the  observation  objected  to  is 
manifestly  just.  But  it  does  not  mean  that  the 
action  of  the  carriers,  in  fixing  and  adjusting  the 
rates,  in  such  instances,  is  not  subject  to  revision  by 
the  Commission  and  the  courts,  when  it  is  charged 
that  such  action  has  resulted  in  rates  unjust  or  un- 
reasonable, or  in  unjust  discriminations  and  prefer- 
ences."* 

It  is  the  purpose  of  this  book  to  set  forth  the  facts 
that  have  led  the  author  to  the  conclusion  that  the 
Government  can  resrulate  railwav  rates  in  such 
manner  as  to  conserve  and  promote  the  public 
welfare  only  in  so  far  as  it  shall  regulate  these  rates 
in  the  spirit  of  the  foregoing  quotation  from  the  de- 
cision of  the  Supreme  Court  of  the  United  States,  in 

*  United  States  Reports,  Vol.  1 68,  Interstate  Commerce  Commission  v. 
Alabama  Midland  Railway. 


INTRODUCTION  XXvii 

Interstate  Commerce  Commission  v,  Alabama  Mid- 
land Railway  Co.  For  the  purpose  of  regulating  the 
railway  rates  in  that  spirit,  it  is  not  necessary  that  the 
Government,  either  in  its  own  person  or  in  the  person 
of  its  agent,  the  Interstate  Commerce  Commission, 
should  exercise  the  power  to  fix  a  railway  rate  or 
railway  rates. 


PART   I 

GERMANY,  FRANCE,  AUSTRIA-HUNGARY, 
THE  DANUBIAN  PRINCIPALITIES,  RUS- 
SIA AND  VICTORIA  AND  NEW  SOUTH 
WALES,   AUSTRALIA 


CHAPTER   I 

THE   CONFLICT   OF   LOCAL   INTERESTS 

One  of  the  principal  reasons  that  led  the  Prussian 
Diet,  in  1879,  to  accept  the  Government's  proposal  to 
enter  upon  the  policy  of  acquiring  by  purchase  or 
by  lease  the  private  railways  situated  in  Prussian  ter- 
ritory, was  public  dissatisfaction  with  the  discrimina- 
tions in  rates  which  the  railways  made  in  favor  of 
what  were  called  competitive  points.  Very  likely 
German  public  opinion  underestimated  the  part 
played  by  water  transportation  in  the  development 
of  competitive  points  and  exaggerated  the  part  played 
by  the  railways.  However  that  may  be,  it  was  gen- 
erally believed  that  the  public  ownership  and  man- 
agement of  the  railways,  supplemented  by  the 
uniform  classification  and  the  common  scheme  of 
charges  adopted  two  years  before  by  all  German 
railways  (both  state  and  private),  would  afford  a 
way  out  of  the  evil,  as  it  was  regarded,  of  local  dis- 
crimination. 

The  scheme  of  charges  adopted  in  1877  imposed 
a  terminal  charge  for  loading  and  unloading,  com- 
bined with  a  haulage  charge  of  a  fixed  sum  per  ton- 

3 


4  RAILWAY  RATES 

mile.  For  example,  upon  the  Prussian  State  railways, 
articles  in  the  ''special  tariff  III"  class,  raw  mate- 
rials mainly,  paid  (and  still  pay)  a  terminal  charge 
plus  a  haulage  charge  of  0.9  cent  per  ton-mile  for 
distances  up  to  100  kilometres,  or  62.5  miles,  and 
0.761  cent  for  every  mile  beyond  that  limit. 

The  difficulty  with  schemes  of  this  kind  is  to  adjust 
properly  the  unit  for  the  haulage  charge.  If  that 
unit  is  fixed  high  enough  to  make  the  short-distance 
The  Inherent  De-  traffic  profitable  to  the  railway,  it 
fed  of  Distance  will  in  all  likelihood  be  so  high  as 
'^^^^ff^  to  check   the   development  of   long- 

distance traffic.  If,  on  the  other  hand,  the  unit  is 
made  low  enough  to  fit  the  requirements  of  the  long- 
distance traffic,  it  will  probably  be  so  low  as  to  render 
the  short-distance  traffic  unremunerative.  France 
and  some  other  countries  have  met  this  difficulty 
with  partial  success  by  lowering  the  unit  per  ton- 
mile  as  the  distance  increases.*  But  these  tapering 
rates  were  not  adopted  when  the  Prussian  and  other 
German  railways  established  their  common  scheme 
of  charges,  and  to-day  in  Prussia  their  introduction 
is  opposed  by  two  powerful  forces.     One  of  these  is 


*  Thus,  on  the  French  Railway  du  Nord,  the  charges  per  ton  per 
kilometre  are :  — 

Kilometres  CENnMBS 

I  to     25 4 

26  to     75 3 

76  to  200 2.5 

201  to  250 2 

251  to  300 1.5 


THE   CONFLICT   OF   LOCAL   INTERESTS  5 

the  Prussian  Government's  fear  of  temporary  or  per- 
manent loss  of  revenue;  the  other,  the  jealousy  of 
the  sectional  interests  and  trade  interests  that  are 
concerned  about  the  preservation  of  the  established 
course  of  trade  and  industry,  and  are  anxious  to  pre- 
vent that  increase  of  competition  between  rival 
producing  and  distributing  centres  which  would 
inevitably  come  about  with  the  development  of 
long-distance  traffic. 

The  nature  and  effect  of  this  conflict  of  local 

interests  is  illustrated  by  the  history  of  railway  rates 

on  grain,  on  beet  sugar  and  on  iron  ores.     In  1888 

the   agricultural   interests  of  eastern 

Sectional  Interests   -p.  .  ....         j     .i         /^  a. 

,^    .    r,  4      Prussia  petitioned   the    Government 

and  Grain  Rates  " 

to  reduce  by  66  per  cent  the  haulage 
charges  on  grain,  which  had  remained  unchanged, 
since  1877,  at  1.557  cents  per  ton-mile.*  The 
petition  was  denied,  on  the  ground  that  the  reduc- 
tion would  constitute  an  inequitable  departure 
from  the  scheme  of  uniform  rates,  since  it  would 
benefit  the  landholders  of  eastern  Prussia  at  the 
expense  of  tnose  of  central  and  western  Prus- 
sia, whose  markets  would  thus  be  opened  to  east- 
ern grain. "j*  In  1891,  nevertheless,  extended  crop 
failures  induced  the  Prussian  Government  to  lower 
the  rates  on  grain,  in  the  interest  of  the  mining  and 


*  The  German  pfennig-per-metric-ton-kilometre  statistics  are  converted 
into  cent-per-short-ton-mile  statistics  by  multiplication  by  0.346. 
t  H.  Braesicke :  Die  Reform  der  Eisenbahnguetertarife. 


6  RAILWAY   RATES 

factory  population  of  the  Rhine  Provinces.  The 
haulage  charges  were  lowered  to  i  .038  cents  per  ton- 
mile  for  that  part  of  the  haul  comprised  between 
125  miles  and  187  miles,  and  to  0.692  cent  for  that 
part  of  the  haul  which  exceeded  187  miles.  The 
amount  of  grain  shipped  upward  of  125  miles 
thereupon  rose  in  proportion  to  the  total  amount 
shipped,  from  10  per  cent  in  1890-91  to  13.4  per 
cent  in  1891-92,  and  to  20  per  cent  in  1892-93.  For 
flour  the  corresponding  figures  were  17  per  cent  in 
1890-91,  20  per  cent  in  1891-92  and  28  per  cent 
in  1892-93.*  The  Government  of  Saxony  (a  state 
situated  halfway  between  the  grain-growing  regions 
of  eastern  Prussia  and  the  Rhine  Provinces  of 
Prussia)  immediately  protested  that  the  farmers 
and  millers  of  Saxony  had  a  natural  right  to  supply 
the  Saxon  demand  for  grain  and  flour,  and  that 
they,  therefore,  should  not  be  exposed  to  competi- 
tion from  Prussian  farmers  and  millers.  The  states 
of  Bavaria,  Wuertemberg  and  Baden  also  lodged 
similar  complaints  on  behalf  of  their  farmers  and 
millers.  The  millers  of  Duisburg,  Mannheim  and 
other  points  on  the  Rhine  said  that  at  the  risk  of 
their  capital  they  had  built  up  a  great  business  in 
importing  grain  from  the  United  States,  Argentina 
and  Russia  and  converting  it  into  flour  for  the  min- 
ing and  factory  population  of  Rhenish  Prussia; 
that  they  had  a  natural  right  to  the  trade  of  Rhenish 

♦  Zeiiung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  July  5,  1893. 


THE  CONFLICT  OF  LOCAL  INTERESTS      7 

Prussia  and  must  not  be  made  to  suffer  competi- 
tion from  the  millers  of  eastern  Prussia.  Finally, 
the  governments  of  Saxony,  Baden,  Wuertemberg 
and  Bavaria  having  notified  the  Prussian  Govern- 
ment that  their  representatives  in  the  Reichstag  and 
Bundesrat  would  not  vote  for  the  Imperial  bill 
authorizing  a  commercial  treaty  with  Russia  unless 
the  tapering  rates  on  grain  should  be  discontinued, 
in  April,  1894,  the  old  rates  of  1.557  cents  per  ton- 
mile  (to  go  into  ejEfect  September  i)  were  restored.* 
A  few  days  after  this  event,  at  a  session  of  the  Com- 
mittee of  the  Prussian  Diet  appointed  to  report 
upon  the  Government's  canal  bill,  Mr.  von  Thielen, 
Minister  of  Public  Works,  said  that  politically  and 
economically  the  West  had  made  a  mistake  in  insist- 
ing upon  the  repeal  of  the  tapering  rates  on  grain. 
And  there  have  been  numerous  other  official  acknowl- 
edgments that  the  repeal  of  the  tapering  rates  on 
grain  was  the  price  paid  for  the  votes  required  to 
pass  the  bill  authorizing  the  commercial  treaty  with 
Russia. 


*  Zeitung  des  Vereiiis  Deutscher  Eisenbaknverwaltungen,  February  15 
and  21,  1894;  December  16,  1896;  March  i,  1899;  Jahrbuch  fuer 
Gesetzgehung,  Verwaltung  und  Volkswirthschaft,  1899,  P-  3^5;  G. 
Gothein :  Der  Deutsche  Aiissenhandel ;  H.  Hailer:  Siudien  ueber  den 
deutschen  Brot-  Geireidehnndel  in  den  Jahren  i88o-gg,  insbesondere  ueber 
den  Einfluss  der  Staffeltarife  und  der  Atifhebung  des  Identitaetsnach- 
weises ;  and  Mr.  Braesicke  in  Zeitschrift  fuer  Binnetischiffahri,  1901, 
Heft  5.  Cf.  E.  von  Eynern  :  Ziuanzig  Jahre  Kajialkaeftipfe.  Ein  Beitrag 
zur  Geschichte  des  Deutschan  Parteiwesens. 

Mr.  von  Eynern  was  chairman  of  the  committee  of  the  Prussian  House 
of  Representatives  appointed  to  report  upon  the  canal  bills  of  1899  and 
1901. 


8  RAILWAY   RATES 

In  May,  1895,  Mr.  von  Thielen  stated  in  the 
National  Railway  Council  that  under  existing  rail- 
way tariffs  125  miles  appeared  to  be  the  maximum 
distance  that  grain  for  domestic  consumption  could 
be  transported  by  rail.*  This  means  that  in  Ger- 
many grain  and  other  farm  products  for  domestic 
consumption  can  reach  distant  markets  only  when 
they  can  be  sent  by  water.  From  the  place  of  pro- 
duction they  are  carried,  generally  by  rail,  to  the 
nearest  waterway ;  and  at  the  end  of  the  journey  by 
water  are  again  transshipped  to  the  railway.  Often- 
times such  freight  passes  from  some  river  to  the  sea 
and  then  back  to  some  other  river,  the  cost  of  the 
successive  transshipments  constituting  a  large  part 
of  the  total  cost  of  transportation.!  For  example, 
grain  raised  in  eastern  Prussia  may  go  to  Danzig 
by  combined  rail  and  water  route,  thence  by  sea  to 
Rotterdam,  thence  by  river  vessel  up  the  Rhine  to 
Ruhrort,  and  thence  by  rail  to  the  centre  of  the 
Ruhr  district.  The  cost  from  Danzig  will  be  11.50 
marks  per  ton;  the  cost  of  an  all-rail  shipment 
would  be  44  marks.  Again,  grain  may  go  in  200- 
ton  vessels  from  Bromberg,  in  Posen,  by  way  of 
the  rivers  Netze,  Warthe,  Oder,  Havel,  Spree  and 
Elbe  to  Hamburg,  thence  by  sea  to  Rotterdam,  and 
thence  by  river  and  rail  to  the  heart  of  the  Ruhr 


*  G.  Zoepfl :  Die  Eisenbahniarifpolitik,  besonders  im  Holzverkehr. 
t  Zeitung  des    Vereins  Deutscher  Eisenbahnverwaltungen,    July    30, 


THE   CONFLICT   OF   LOCAL   INTERESTS  9 

district,  at  a  cost  of   15.80  marks  as  against  a  cost 
of  38.30  for  the  direct  all-rail  shipment  * 

The  iron  and  steel  producing  region,  known  as 
the  Ruhr  district,  lying  immediately  to  the  east  of 
the  Rhine  and  north  of  Cologne,  between  the  rivers 
Ruhr,  Emscher  and  Lippe,  has  a  population  of 
about  two  and  one-half  millions,  and  is,  therefore, 
an  important  market  for  grain  and  flour.  In  1899 
the  leading  agricultural  regions  of  Pomerania, 
East  and  West  Prussia  and  Posen  sent  by  rail  into 
the  Ruhr  district  100  metric  tons  of  grain  and  500 
tons  of  flour.  Whatever  other  grain  and  flour  these 
regions  sold  to  the  Ruhr  district  was  shipped,  as 
already  indicated,  by  way  of  Danzig,  the  Baltic,  the 
North  Sea  and  the  Rhine,  or  by  way  of  the  Warthe, 
Oder,  Elbe,  North  Sea  and  the  Rhine.  The  total 
grain  and  flour  carried  into  the  Ruhr  district  dur- 
ing this  year  from  eastern  Germany,  Russia,  South 
America  and  the  United  States,  by  way  of  the  Rhine, 
amounted  to  693,000  tons.  By  rail  there  was  car- 
ried into  this  district  only  a  total  of  150,000  tons  of 
grain  and  flour,  and  this  almost  altogether  from  the 
near-by  districts  of  Rhenish  Prussia,  Westphalia 
and  Hannover.f 

*  Sympher :  Die  Wirthschaftliche  Bedeutung  des  Rhein-Elbe-Kanah. 

t  Statistik  der  Gueterbewegung  auf  Deutschen  Eisenbaknen,  1899,  and 
Die  Binnenschiffahrt  im  Jahre  i8gg,  Statistik  des  Deutschen  Reichs,  Neue 
Folge,  Vol.  131.  Compare  also,  Sympher :  Die  Wirthschaftliche  Bedeutung 
des  Rhein-Elbe-Kanals ;  2  volumes,  20  marks.  Not  a  public  document, 
but  issued  with  the  consent  of  the  Minister  of  Public  Works.  The  author 
is  Baurath  in  the  Department  of  Public  Works,  and  had  charge  of  the 
collection  of  the  data  upon  which  the  recent  canal  bills  were  based.    Die 


10  RAILWAY   RATES 

On  grain  and  flour  the  charge  by  rail  from  Rot- 
terdam to  the  Ruhr  district,  134  miles,  is  7.50  marks; 
by  way  of  the  Rhine  it  is  2  marks.  From  Rotter- 
dam to  Mannheim,  312  miles,  the  charge  by  rail  is 
18.40  marks;  by  way  of  the  Rhine  it  is  4  marks. 
In  1896  wheat  was  carried  to  Mannheim  by  water 
from  Braila,  Roumania,  for  25  marks  per  metric 
ton;  from  Nikolojew,  Russia,  for  19  marks;  from 
Buenos  Ayres  for  25  marks;  and  from  New  York 
for  15  marks.  At  the  same  time  an  all-rail  ship- 
ment to  Mannheim  would  have  cost  from  Munich 
17.60  marks;  from  Berlin  30  marks;  and  from 
Koenigsberg  56.30  marks.* 

It  is,  therefore,  not  surprising  that  in  this  condi- 
tion of  affairs  Mr.  von  Thielen  should  open  the 
debate  upon  the  Government's  canal  bill  in  1899 
with  the  statement  that  for  many  purposes  of  trade 
eastern  Germany  and  Rhenish  Prussia  were  farther 
apart  than  Germany  and  New  York  or  Germany 
and  Buenos  Ayres.  He  might  have  added  that, 
when  the  experimental  tapering  rates  on  grain  for 
domestic  consumption  were  withdrawn  in  1894,  an 
export  bounty  on  grain  of  about  35  marks  per  metric 
ton  was  established,  by  way  of  compensation  to 
the  eastern  landowners  ;t    that  in  1895  the  haulage 

Wasserwirthschaftliche  Vorlage,  by  the  same  author,  costs  but  a  mark  and 
a  half,  and  gives,  within  the  compass  of  150  pages,  a  good  account  of  the 
traffic  on  the  German  waterways. 

*  Sympher :  Die  Wirthschaftliche  Bedeutung,  etc. ;  P.  Mohr :  Die 
Entwickelujig  des  Grossbetriebs  in  der  Getreidemudlerei  Deutschlands. 

t  Conrad's  Handwoerterbuch  der  Staatswissenschaften  :  article  Idenii- 


THE   CONFLICT   OF   LOCAL  INTERESTS 


11 


charges  on  grain  for  export  were  reduced  to  0.495 
cent  per  ton-mile  for  that  part  of  the  haul  exceed- 
ing 62.5  miles;  and  that,  since  1895,  Germany  had 
afforded  the  curious  spectacle  of  exporting  each  year 
from  its  eastern  provinces  to  Norway,  Sweden  and 
England  several  hundred  thousand  tons  of  bounty- 
fed  wheat  and  rye,  while  importing  at  the  same  time 
into  Rhenish  Prussia,  over  a  protective  tariff  of  35 
marks  per  ton,  about  2,700,000  tons  of  wheat  and 
rye  grown  in  Russia  and  in  North  and  South  Amer- 
ica.* 

It  was  not  until  1901  that  the  old  rate  of  1878  on 
raw  beet  sugar  of  1.557  cents  per  ton-mile,  exclu- 
sive of  terminal  charges,  was  reduced.  Between 
1880  and  1899  the  Magdeburg  (Elbe 
district)  price  of  raw  sugar  fell  from 
660  marks  per  metric  ton  to  220 
marks.  In  May,  1896,  when  the  price  of  raw 
sugar  stood  at  201.50  marks  per  ton,  the  Imperial 


The  Conflict  over 
Sugar  Rates 


t'dts-Nachweis  ;  and  H.  Hailer :  Studien  ueber  den  Deutschen  Brot-Getreide- 
handel. 

*  Volkswirthschaftliche  Chronik  fuer  das  Jahr  igoo,  reprinted  from 
Jahrbucher  fuer  Nationalokonomie  und  Statisiik. 

Average  Annual  Exports  in  Metric  Tons 


1890-93 
1894-96 
1897-99 
1900  . 


Wheat 


270 

74,700 

167,900 

295,000 


Rye 


41,300 

120,000 

76,000 


Oats 


34,800 
45,700 
108,000 


12  RAILWAY  RATES 

Reichstag  raised  the  export  bounty  on  sugar  from 
12.50  marks  per  ton  to  25  marks;  and  in  order  to 
provide  the  means  for  the  payment  of  the  bounty, 
it  raised  the  tax  on  the  domestic  consumption  of 
sugar  from  1.95  cents  per  pound  to  2.16  cents.  The 
Government  stated  at  the  time  that  the  cost  of  pro- 
duction of  beet  sugar  was  230  to  240  marks  per 
metric  ton,  and  that  it  would  not  be  possible  to 
reduce  that  cost  materially  by  further  economies 
in  production.  In  February,  1898,  Privy  Govern- 
ment-Councillor Professor  Maerker  declared  in  the 
session  of  the  Deutscher  Landwirthschajtsrat  that 
the  growth  of  the  manufacture  of  beet  sugar  (apart, 
of  course,  from  bounty  stimulation)  had  become 
entirely  a  question  of  the  cost  of  the  transportation 
of  the  raw  materials  and  the  finished  product. 

Meanwhile,  in  1893,  the  sugar  manufacturers  of 
the  Prussian  province  of  Silesia  asked  the  Prussian 
Government  to  reduce  railway  charges  by  estab- 
lishing tapering  rates.  They  pointed  out  that  sugar 
was  carried  from  Frankfort-on-the-Main  by  way  of 
the  Main  and  the  Rhine  to  Amsterdam,  and  by  these 
rivers  and  the  sea  to  Hamburg,  in  4  and  9  days, 
respectively;  and  from  Laube-Tetschen,  the  head 
of  navigation  on  the  Elbe,  to  Hamburg  in  8  to 
10  days.  The  producers  on  the  Rhine  and  the  Elbe 
could  sell  sugar  in  Hamburg  on  10  to  12  days' 
delivery,  and  were  thus  in  a  position  to  take  advan- 
tage of  slight  fluctuations  in  the  market.     Not  so 


THE   CONFLICT   OF   LOCAL   INTERESTS  13 

the  Silesian  producers,  who  had  to  allow  three  to 
four  weeks  for  the  shipment  of  sugar  to  Hamburg 
via  the  Oder  and  the  Elbe.  Again,  the  Hamburg 
exporters  preferred  sugar  that  could  be  had  at  all 
times  of  the  year  and  delivered  without  fail  on  the 
date  agreed  upon.  Both  of  these  facts  were  against 
the  Silesian  producer,  since  the  traffic  on  the  Oder 
was  more  liable  to  interruptions  from  low  water  or 
from  ice  than  was  the  traffic  on  the  Rhine  and  the 
Elbe.  For  these  reasons  the  Silesian  manufacturers 
of  sugar  asked  the  Government  for  tapering  rates, 
which  should  put  them  more  nearly  on  an  equality 
with  the  manufacturers  on  the  Rhine  and  the  Elbe. 
They  had  not  been  able  to  use  the  railways,  they 
said,  for  the  rate  by  water  was  only  0.346  cent 
per  ton-mile  as  against  the  railway  rate  of  1.557 
cents.* 

The  sugar  producers  of  the  Rhine  and  the  Elbe 
remonstrated  that  they  had  been  the  pioneers  in  the 

*  Volkswirthschaftliche  Chronik,  igcxj,  p.  365  ;  Statistik  der  Gueterbe- 
wegung  auf  Deutschitt  Eisenbahnen,  1899;  and  Die  Binnenschiffahrt  im 
Jahre,  1 899. 

In  the  census  year  1895  the  area  under  sugar  beets  in  Silesia  and 
Posen  was  237,000  acres,  or  24  per  cent  of  the  area  under  beets  in  the 
whole  of  Germany. 

In  1899  the  sugar  crop  of  Silesia  and  Posen  went  to  market  as 
follows  :  — 

To  Hamburg :  —  To  Baltic  ports  :  — 

By  rail Nil  By  rail      .     .     1 700  tons 

By  Oder  and  Elbe     .     .     184,000  tons  By  Oder  .     .     Nil 

n,    -D  1...  .  From  Posen 

To  Baltic  ports :  — 

By  rail 15,000  tons 

By  Netze,  Warthe,  Oder  and  Vistula 140,000  tons 


14  RAILWAY   RATES 

beet-sugar  industry,  which  they  had  established  at 
the  risk  of  their  capital;  that  60  per  cent  of  the 
raw  sugar  raised  was  exported;  and  that  they  had 
a  natural  right  to  demand  that  their  share  in  the 
export  trade  should  be  protected  against  encroach- 
ments from  the  Silesian  producers,  who  were  inter- 
lopers. They  further  maintained  that  the  Silesian 
producers  had  gone  into  the  beet-sugar  industry 
with  the  full  knowledge  that  they  would  be  handi- 
capped by  a  comparatively  long  haul  to  the  markets, 
but  believing  that  the  comparatively  low  price  of 
land  in  Silesia  would  more  than  offset  the  disad- 
vantages arising  from  location;  and  now  they  had 
the  hardihood  to  ask  the  State  to  relieve  them  from 
those  disadvantages. 

The  Chamber  of  Commerce  of  Magdeburg  and 
Danzig  took  a  hand  in  the  dispute,  protesting  that, 
should  the  Silesian  sugar  traffic  be  diverted  from  the 
rivers  to  the  railways,  the  merchants  of  Magdeburg 
and  Danzig  would  lose  their  trade  and  commissions. 
The  shipping  interests  on  the  Elbe  and  Oder,  also, 
added  that  it  was  unjust  for  the  State  to  use  the  State 
railways  to  injure  or  destroy  a  private  industry  — 
navigation  upon  the  rivers  and  canals.  They  pointed 
out  that  about  75  per  cent  of  the  sugar  for  ex- 
port arrived  at  the  port  of  export  in  river-craft; 
that  about  two-thirds  of  that  sugar  had  gone  a  short 
distance  by  rail  to  reach  the  river,  but  for  so  short 
a  distance  that  the  sugar  traffic  upon  the  railways 


THE   CONFLICT   OF   LOCAL  INTERESTS  15 

was  only  38,000,000  ton-miles,  as  against  a  sugar 
traffic  of  144,000,000  ton-miles  upon  the  waterways. 
The  State,  they  said,  had  no  right  to  take  from  the 
river  and  canal  craft  this  important  traffic.  The 
controversy  spread  to  other  districts  and  other  trade 
interests,  and  the  sectional  jealousies  and  trade  jeal- 
ousies became  more  complex,  as  well  as  more  bitter. 

While  the  old  dispute  was  at  its  height,  the  Prus- 
sian Railway  Department  made  special  rates  on 
Russian  sugar,  in  order  to  divert  traffic  from  the 
Russian  port  of  Libau  to  Danzig  and  Koenigsberg. 
A  fresh  storm  of  indignation  broke  out ;  and  as  the 
Prussian  Diet  was  not  sitting,  the  fight  was  trans- 
ferred to  the  Imperial  Reichstag.  The  Prussian 
Minister  of  Foreign  Affairs,  who  was  also  a  Min- 
ister in  the  Imperial  Government,  replied  to  all  the 
objectors  that,  if  the  Prussian  Railway  Department 
had  been  in  a  position  to  act  on  its  own  judgment, 
it  would  have  lowered  the  rates  on  sugar  long  ago. 
He  must,  he  said,  beg  the  various  parties  to  the  con- 
troversy over  the  freight  rates  on  sugar  to  come  to 
some  agreement  among  themselves,  and  thus  set 
his  Government  free  to  act. 

At  last,  in  April,  1901,  the  Government  took  the 
bull  by  the  horns  and  reduced  the  export  rates  on 
raw  sugar  from  1.557  cents  per  ton-mile  to  0.9  cent 
for  the  first  62.5  miles  of  the  haul,  and  to  0.761  cent 
for  that  part  of  the  haul  exceeding  this  limit.  Noth- 
ing short  of  the  absolute  necessity  of  strengthening 


16  RAILWAY   RATES 

the  position  of  German  beet  sugar  in  the  interna- 
tional markets  had  sufficed  to  induce  the  Govern- 
ment to  run  the  risk  of  incurring  the  displeasure  of 
the  various  interests  adversely  affected  by  the  change* 
In  connection  with  the  beet-sugar  industry  another 
trouble  had  arisen  for  the  Railway  Department. 
The  Department  had  issued  laborers'  return  pas- 
senger tickets  at  reduced  rates;  and  the  men  and 
women  farm  laborers  of  the  districts  east  of  the  Oder 
had  made  extensive  use  of  these  tickets  in  going  each 
summer  to  the  country  along  the  Elbe  for  the  pur- 
pose of  harvesting  the  beet-sugar  crop.  These  har- 
vesting excursions  are  heaviest  from  the  poorest 
districts,  and  they  afford  the  peasants  an  important 
means  of  supplementing  their  scanty  resources. 
The  men  earn  in  the  harvest  season  about  550  marks, 
the  women  about  400  marks,  making  a  total  of 
about  34,000,000  marks  for  the  75,000  men  and 
women  engaged.  These  earnings  are  frequently 
laid  aside  in  order  to  enable  the  owners  to  establish 
themselves  upon  the  Renten-gueter,  which  are  small 
farms  let  out  by  the  State  for  a  fixed  rental  in  money 
or  grain,  with  the  provision  that  the  rental  may  be 
altered  only  on  consent  of  both  landlord  and  tenant. 
In   1890  there  were  enacted   still   further  peculiar 

*  Ueier  die  Detarijierung  von  Zucker  "zur  Ausfithr"  A.  Schulz: 
Geschaftsfuhrer  i.  d.  Centralstelle  der  Preussischen  Landwirtschafts- 
Kammern  ;  Zeilung  des  Vereins  Deuischer  Eisenbahnverwaltungen,  Janu- 
ary 2,  1896;  September  26,  1900 ;  and  March  19,  23  and  30,  1901  ; 
Zeitschrifl  fuer  Binnenschiffahrt,  Heft  9,  1901  ;  and  Speditions-  und 
Schiffahrts- Zeiiung,  July  12,  1901. 


THE   CONFLICT   OF   LOCAL   INTERESTS  17 

legal  provisions  relating  to  Renten-gueter  and  in- 
tended to  facilitate  the  establishment  of  small  farms, 
through  the  breaking  up  of  the  large  landed  estates 
east  of  the  Oder.* 

The  landed  aristocracy  of  eastern  Prussia  objected 
to  the  issue  of  these  cheap  return  tickets,  on  the 
ground  that  the  annual  excursions  to  Prussian 
Saxony  had  raised  the  wages  of  farm  labor.  Ac- 
cordingly, in  a  communication  from  the  Prussian 
Government  to  the  Diet,  stating  what  the  Govern- 
ment had  resolved  to  do  in  response  to  demands 
from  the  Diet,  it  was  announced  that  the  Railway 
Department  would  make  no  new  arrangement  for 
the  issue  of  laborers'  return  passenger  tickets  for 
distances  exceeding  32  miles,  and  that  the  exist- 
ing arrangements  for  the  issue  of  such  tickets 
should  be  discontinued  as  rapidly  as  was  consistent 
with  the  rights  of  all  concerned. f  To  one  inter- 
ested in  the  working  of  politics,  it  is  instructive  to 
see  the  Prussian  Government  legislate  in  1890  for 
the  purpose  of  establishing  a  class  of  small  farmers, 
and  in  1900  issue  an  administrative  order  that  de- 
prived the  farm  laborer  of  an  effective  means  of 
taking  advantage  of  that  legislation. 

In  addition  to  the  harvesting  excursions  to  the 
Prussian  Province  of  Saxony,  there  is  a  heavy  per- 

*  Conrad's  Handwoerterbuch  der  Staatswissenschaften  :  Sachsengaen' 
gerei  und  Rentengueter. 

t  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  January  1 7, 
1901. 


18  RAILWAY   RATES 

manent  movement  of  people,  mainly  farm  laborers, 
from  the  eastern  agricultural  regions  to  the  indus- 
trial and  mining  regions  of  Rhenish  Prussia  and 
Westphalia,  and  in  a  minor  degree  to  Brandenburg 
and  Hannover.  In  the  period  between  the  two 
censuses  of  1882  and  1895  this  movement  averaged 
180,000  people  a  year  for  Prussia  proper  and  its 
provinces,  and  270,000  a  year  for  Germany  as  a 
whole.  In  the  same  period  the  number  of  men 
laborers  employed  in  all  industries  in  Germany  in- 
creased 16.8  per  cent;  those  in  the  mining  and 
manufacturing  industry,  39.8  per  cent.  But  the 
men  employed  in  agriculture  (farm  labor)  decreased 
10.7  per  cent.*  It  is  therefore  readily  understood 
why  leiitenot,  or  scarcity  of  labor,  is  the  constant 
cry  from  the  agricultural  regions  of  eastern  Ger- 
many. It  is  also  readily  understood  why  the  Gov- 
ernment has  to  take  action,  even  though  the  action 
be  diametrically  opposed  to  another  branch  of  its 
policy. 

It  is  not  perhaps  so  clear  why  a  similar  confusion 
should  arise  in  a  single  mind,  and  that  the  mind  of 
a  man  of  science;  yet  such  is  sometimes  the  case. 
Indeed,  to  a  considerable  degree  in  Germany,  politi- 
cal science  but  reflects  the  enthusiasms,   the  per- 


*  The  average  sum  paid  in  wages  per  man  and  boy  employed  in  the 
steel  and  iron  industries  in  the  Ruhr  district  rose  from  953  marks  in  1886 
to  1073  marks  in  1894.  Sympher :  Die  Wirthschaftliche  Bedeutung, 
etc.  Humann:  Leutenot ;  in  Sammlung  von  Schriften  zur  Kanalfrage. 
Mr.  Humann's  figures  are  taken  from  Vol.  iii  of  the  Reichsslatistik. 


THE   CONFLICT   OF   LOCAL   INTERESTS  19 

plexities  and  the  shifty  devices  of  Government. 
Thus  no  less  a  writer  than  Mr.  Buchenberger, 
President  of  the  Ministry  of  Finance  of  Baden, 
regarded  in  academic  circles  as  one  of  the  chief 
authorities  in  Europe  upon  agriculture,  begins  a 
discussion  of  the  migrating  labor  movements  as 
related  to  the  scarcity  of  farm  labor  *  by  stating  that, 
for  an  adequate  appreciation  of  the  full  significance 
of  these  movements,  one  must  remember  that  they 
materially  raise  the  standard  of  living  of  a  large 
number  of  poverty-stricken  people.  They  do  so,  he 
says,  not  only  by  increasing  the  income  of  these 
people  from  backward  districts,  but  also  by  bringing 
them  into  contact  with  a  higher  civilization  and  thus 
enlarging  their  intellectual  horizon,  to  say  nothing 
of  teaching  them  better  methods  of  cultivating  the 
soil.  Notwithstanding  this  weighty  consideration, 
after  the  admission  that  it  is  quite  out  of  the  question 
to  have  positive  police  regulation  of  the  migratory 
movements  of  labor  —  no  matter  how  much  the 
eastern  landholders  might  desire  it  —  as  being  in- 
consistent with  modern  principles  of  individual  free- 
dom, Mr.  Buchenberger  proceeds  as  follows:  "But 
in  consideration  of  the  well-known  fact  that  the 
eastern  landowners  are  in  serious  straits,  one  must 
respect  their  wishes  that  the  State  take  no  measures 
to  encourage  the  migrations  in  question.     From  this 

*  A.  Buchenberger :  Agrarwesen  und  Agrarpolitik,  Vol.  I,  pp.  590- 
591. 


20  RAILWAY   RATES 

point  of  view  it  is  questionable  public  policy  to  issue 
cheap  return  tickets,  since  such  issue  would  in  effect 
be  a  bounty  on  the  export  of  laborers  —  a  bounty 
which  would  give  western  agriculture,  already  better 
off  than  eastern  agriculture,  an  advantage  as  to 
labor  supply,  at  the  cost  of  and  to  the  detriment  of 
the  eastern  landed  interests." 

Let  us  now  turn  to  the  subject  of  rates  and  local 
interests  in  respect  to  the  industries  dependent  on 
iron  ores. 

The  Ruhr  district,  as  already  stated,  lies  to  the 
east  of  the  Rhine  and  north  of  Cologne,  between 
the  rivers  Emscher,  Ruhr  and  Lippe,  and  is  the 
The  Arrested  De-  g^^^^^^t  coal  mining  and  iron  and 
veiopment  of  the  stccl  producing  region  of  continental 
Iron  and  Steel       Europc.      About    2  20   miles   to    the 

"^  ^^  southwest  are  the  extensive  iron  ore 

deposits  of  Luxemburg  and  the  Saar  district,  which 
furnish  precisely  the  ores  needed  to  supplement  the 
insufficient  supply  obtainable  from  the  Ruhr  district 
itself.  But  thus  far  the  Prussian  Government  has 
been  unwilling  to  make  rates  which  would  permit 
the  shipment  of  any  but  selected  ores  from  the  Saar 
to  the  Ruhr;  and  in  consequence  the  Ruhr  iron  in- 
terests have  been  forced  to  have  increasing  recourse 
to  the  importation  of  iron  ores  from  Spain  and  Sweden. 

At  the  annual  meeting  of  the  German  Steel  and 
Iron  Association  (Verein  Deutscher  Eisenhuetten- 
leute)  held  in  February,  1888,*  Mr.  Jencke  discussed 

•*  Stahl  und  Eisen,  March,  1888. 


THE   CONFLICT   OF   LOCAL   INTERESTS  21 

the  reasons  for  the  comparative  infrequency  and 
smallness  of  the  reductions  in  railway  rates  since 
the  nationahzation  of  the  railways  in  1879.  Mr. 
Jencke  had  left  the  service  of  the  King  of  Saxony, 
after  a  distinguished  career  in  the  Railway  Depart- 
ment, and  had  become  Chairman  of  the  Executive 
Committee,  composed  of  the  heads  of  departments, 
of  Krupp  and  Company,  the  largest  steel  and  iron 
producers  in  Europe.*  He  was  also  serving  at  this 
time  on  one  of  the  District  Railway  Councils. f  Sub- 
sequently he  has  received  several  flattering  invita- 
tions to  enter  the  Prussian  Railway  Service  and  has 
been  made  a  Privy  Finance  Councillor. 

On  the  occasion  here  referred  to  Mr.  Jencke  said 
that,  if  the  largest  railways  had  not  passed  into  the 
hands  of  the  State,  the  rates  on  iron  ores  from  Al- 
sace-Lorraine to  the  Ruhr  district  would  have  been 
reduced,  and  probably  the  rates  on  raw  materials 
generally.  Under  private  ownership  it  was  neces- 
sary only  to  convince  a  particular  railway  that  a 
lowering  of  rates  in  its  territory  would  increase  its 
traffic  and  income,  and  the  reduction  would  follow. 

*  Die  Industrielhn  Werke  Deutschlands.  On  January  I,  1899,  there 
were  in  the  employment  ot  the  various  Krupp  companies  41,750  people. 

t  The  District  Railway  Councils  and  the  National  Railway  Council 
were  established  by  law  in  1882.  The  members  of  the  District  Councils 
are  elected  by  the  Chambers  of  Commerce  and  by  analogous  bodies  repre- 
senting the  manufacturing,  mining  and  agricultural  interests.  The  Na- 
tional Council  consists  of  30  members  elected  by  the  District  Councils 
and  10  members  appointed  by  the  Ministers  of  Agriculture,  Trade, 
Finance  and  Public  Works.  These  bodies  have  advisory  powers ;  and 
they  were  established  in  order  that  they  might  keep  the  administration  in 
touch  with  the  people  in  matters  of  railway  rates. 


22  RAILWAY  RATES 

But  the  State  could  not  proceed  in  that  simple  way. 
There  were  a  number  of  competing  coal-mining, 
iron-mining  and  iron  and  steel  producing  localities 
and  interests  all  dependent  upon  one  State  system 
of  railways.  A  reduction  in  rates  given  to  one  inter- 
est or  locality  had  to  be  followed  by  counterbalancing 
reductions  to  the  others,  in  order  that  no  one  should 
be  given  an  undue  advantage.  The  various  Dis- 
trict Railway  Councils,  as  well  as  specially  appointed 
committees,  were  constantly  engaged  upon  the  most 
minute  investigations  into  the  relative  cost  of  mining 
coal  and  iron  and  producing  pig  iron  at  different 
centres  in  Germany,  with  a  view  to  recommend- 
ing just  and  relatively  reasonable  railway  differen- 
tials; and  these  investigations  inevitably  consumed 
much  time  and  delayed  action.  Thus,  the  iron  ore 
interests  of  Lahn  and  Sieg  had  asked  for  lower  rates 
in  1882,  and  not  until  1886  had  the  Government 
felt  ready  to  grant  the  request.  But  the  general  pub- 
lic itself  must  share  with  the  State  the  responsibility 
for  such  delays.  The  jealousy  of  competing  pro- 
ducing regions  led  each  region  to  dispute  the  figures 
as  to  cost  of  production  put  forth  by  the  other  re- 
gions, and  the  Government  found  it  extremely  diffi- 
cult to  make  an  adjustment  of  rates  satisfactory  to 
each  party  to  the  controversy.  If  the  several  coal 
and  iron  producing  regions  should  fail  to  curb  these 
local  jealousies,  the  prospect  of  reductions  in  rates 
would  be  small,  for  the  hands  of  the  Government 


THE   CONFLICT   OF   LOCAL   INTERESTS  23 

would  be  tied.  The  existing  rates  had  been  in  force 
since  April,  1881.  In  the  meantime  reductions  of 
all  kinds  had  been  effected  in  the  cost  of  producing 
pig  iron,  so  that  the  transportation  charges  had  come 
to  constitute  25  per  cent  of  the  cost  of  making  pig 
iron.  That  proportion  must  be  contrasted  with  the 
10  per  cent  borne  by  the  transportation  charges  to 
the  total  cost  of  producing  iron  in  Great  Britain, 
Germany's  principal  competitor.* 

In  the  following  year,  1889,  the  Minister  of  Public 
Works,  Mr.  von  Maybach,  informed  the  Prussian 
Diet  that  the  Government's  refusal  to  grant  the  re- 
quests from  the  Ruhr  district  for  lower  rates  on  Saar 
iron  ores  was  due  to  the  unwillingness  of  the  Gov- 
ernment to  prefer  the  Ruhr  to  the  other  iron-produc- 
ing centres.  It  would  not  do  to  give  one  district 
rates  which  would  allow  it  to  grow  more  rapidly 
than  another  district;  equal  treatment  must  be 
accorded  to  all.  Moreover,  the  Government  could 
not  make  reductions  which  would  expose  it  even  to 
the  suspicion  of  preferring  one  district. f 

At  about  the  same  time  Mr.  Todt,  who  was  then 
in  charge  of  the  State  railways  in  the  Ruhr  district, 
said  that  the  Government  long  since  would  have 

*  Zeitschrift  fuer  Binnenschiffahrt,  1901,  Heft  24.  In  December, 
1901,  Dr.  Beumer,  Editor  of  Stahl  titid  Eisen,  and  one  of  the  foremost 
authorities  on  the  German  steel  and  iron  industry,  stated  that  in  Germany 
the  transportation  charges  constituted  28  per  cent  of  the  cost  of  produc- 
ing pig  iron  as  against  10  per  cent  in  England. 

t  E.  von  Eynern  :  Zzvatizig  Jahre  Kanalkaempfe.  Compare  also 
Zeitschrift  flier  Binnenschiffahrt,  1901,  Heft  7,  report  of  a  speech  by  Mr. 
von  Thielen,  Minister  of  Public  Works. 


24  RAILWAY  RATES 

lowered  the  rate  on  iron  ores  from  Alsace-Lorraine 
to  the  Ruhr  had  it  not  been  constrained  by  con- 
sideration for  the  other  iron-producing  centres  of 
Germany  *  He  added  that  the  iron  traffic  in  ques- 
tion was  about  250,000  tons  a  year,  but  that  it  would 
rise  under  favorable  railway  rates  to  1,000,000  tons. 
He  pointed  out  that  in  1888  not  less  than  44  per 
cent  of  the  ores  shipped  from  Lorraine  to  the  Ruhr 
had  gone  bv  rail  to  Oberlahnstein  on  the  Rhine, 
thence  by  vessel  to  Ruhrort  and  Duisburg,  a  distance 
of  120  miles,  and  thence  by  rail  to  the  rolling  mill, 
some  10  or  15  miles.  As  late  as  1898  an  eminent 
authority  stated  that  60,000  coal  wagons  returned 
empty  each  year  from  the  Lorraine  district  to  the 
Ruhr,  and  that  the  net  railway  revenue  would  be 
increased  by  3,000,000  marks  a  year  should  the 
Government  grant  the  reduction  in  iron-ore  rates 
then  demanded. f 

At  the  meeting  of  the  Verein  Deutscher  Eisen- 
huettenleute,  held  in  1896,;}:  Mr.  Jencke  again  dis- 
cussed the  railway  situation  in  its  bearing  on  the  iron 
and  steel  industry.  He  began  by  saying  that,  if  the 
railways  had  remained  in  the  hands  of '  corporations, 
they  would  have  quelled  in  its  infancy  the  agitation 
for  canals,  and  would  have  done  it  by  lowering  their 

*  Archiv  futr  Eisenbahnwesen,  i888.  Compare  also  the  article  by  Mr. 
Schmeisser,  an  official  in  the  Railway  Department. 

t  Stahl  und  Risen,  December  15,  1898.  Compare  also  January,  1891; 
February,  1893;  March,  1895,  '^9^  ^^^  1898;  January  I,  April  I  and 
October  15,  1900;   and  February  15  and  March  15,  1901. 

X  Stahl  und  Eisen,  March  15,  1896. 


THE   CONFLICT   OF   LOCAL   INTERESTS  25 

charges  to  the  presumptive  canal  rates.  But  the 
former  Minister  of  PubHc  Works,  Mr.  von  Maybach, 
had  failed  to  appreciate  the  country's  needs  and  had 
run  the  railways  primarily  as  a  revenue-producing 
concern.  The  State  of  Prussia  had  incurred  annu- 
ally recurring  expenditures  on  the  strength  of  the 
railway  surplus;  and  the  present  Minister  of  Fi- 
nance, Mr.  von  Miquel,  had  repeatedly  confessed 
his  inability  to  grant  general  reductions  in  rates  de- 
manded by  the  needs  of  the  industrial  community. 
Moreover,  the  railway  administrators  were  still  con- 
fronted by  the  jealousy  of  the  several  iron-produc- 
ing regions,  a  jealousy  that  asserted  itself  through 
the  machinery  of  the  District  Railway  Councils  and 
the  National  Railway  Council.  For  i6  years  the 
Ruhr  people  had  been  asking  for  lower  rates  on 
iron  ores  from  Alsace-Lorraine,  and  obtained  noth- 
ing. The  situation  was  critical,  and  there  was  but 
one  way  out  of  it :  the  Government  must  abandon 
the  past  policy  of  trying  to  hold  the  balance  between 
the  claims  of  rival  producing  centres.  It  ought  to 
announce  that  it  would  reduce  the  haulage  charges 
on  all  raw  materials  —  not  iron  and  coal  only  —  by 
0.0346  cent  per  ton-mile  each  year,  until  the  present 
rate  of  0.761  cent  should  be  lowered  to  0.415  cent. 
The  State  could  take  steps  in  advance  to  meet  any 
anticipated  loss  of  revenue.  Upon  the  public,  on 
the  other  hand,  notice  should  be  served  that  railway 
charges  on  raw  materials  were  to  come  down  auto- 


26  RAILWAY  RATES 

matically  each  year  by  a  certain  amount,  without 
any  regard  whatever  for  the  effect  of  those  reductions 
upon  the  respective  abilities  of  the  various  producing 
interests  to  continue  to  compete  one  with  the  other. 
This  advocacy  of  a  mechanical,  all-round  reduction 
in  railway  rates,  as  the  only  way  out  of  the  deadlock 
of  local  jealousies,  makes  the  report  of  Mr.  Jencke's 
speech  one  of  the  half-dozen  most  significant  docu- 
ments in  the  railway  literature  of  the  world. 

In  the  Imperial  Reichstag,  on  February  28,  1898, 
the  late  Baron  von  Stumm  expressed  the  opinion 
that  local  jealousies  constituted  the  principal  obsta- 
cle to  the  securing  of  lower  railway  charges.  The 
National  Railway  Council  generally  split  up  into 
two  camps.  Either  the  agricultural  interests  of  the 
East  were  pitted  against  the  manufacturing  and 
trading  interests  of  the  West,  or  the  central  provinces 
were  pitted  against  the  eastern  and  western  ones. 
These  conflicts  of  sectional  interests  were  especially 
marked  whenever  it  was  proposed  to  introduce 
tapering  rates.  Baron  von  Stumm  was  the  great 
rival  of  the  Krupps.  He  was  at  the  head  of  the  larg- 
est coal,  iron  and  steel  interests  in  Alsace-Lorraine, 
and  had  been  a  personal  friend,  as  well  as  a  trusted 
adviser,  of  Emperor  William  I* 

In  March,  1899,  the  official  organ  of  the  Verein 
Deiitscher  Eisenhahnverdjaltungen,  an  organization 
composed  of  officers  of  the  various  German  State 

*  Zeitung  des  Vereins  Deutuher  Eisenbahnverwaltungen,  March  9,  1 898. 


THE   CONFLICT   OF   LOCAL   INTERESTS  27 

railway  systems,  made  the  following  illuminating 
comment  on  the  Prussian  canal  bill.  It  said  that 
possibly  the  expenditure  upon  the  Prussian  railways 
of  261,000,000  marks  —  the  estimated  cost  of  the 
proposed  canals  —  would  put  those  railways  in  a 
position  to  handle  all  the  traffic  that  these  canals 
were  expected  to  handle.  But  in  any  event  one 
must  remember  that  the  building  of  canals  would 
solve  the  extremely  perplexing  problem  of  reducing 
freight  rates  in  a  manner  acceptable  to  the  different 
sections  of  Prussian  territory.  In  other  words,  it 
was  thus  represented  that  the  advantage  of  the  pro- 
posed canals  lay  in  the  fact  that  they  would  break 
the  local  interest  deadlock  by  transferring  the  re- 
sponsibility of  the  odious  business  of  making  those 
local  discriminations  —  which  are  an  unavoidable 
incident  of  the  progress  and  development  of  a  coun- 
try —  from  the  Government  to  private  persons 
carrying  on  navigation  on  the  canals  and  rivers. 

Upon  the  matter  of  the  request  of  the  Ruhr  people 
for  lower  rates  on  Saar  iron  ores,  the  National  Rail- 
way Council  at  last  reported  favorably  in  December, 
1897.  In  the  following  March,  the  Minister  of  Pub- 
lic Works,  Mr.  von  Thielen,  stated  in  the  Prussian 
Diet  that  rarely  had  a  question  been  studied  so 
thoroughly  as  this  one,  and  that  the  claims  of  the 
Ruhr  people  had  on  the  whole  been  substantiated. 
A  year  later,  no  action  having  meanwhile  been  taken 
upon  the  report,  he  cited  this  state  of  affairs  as  a  sig- 


28  RAILWAY  RATES 

nificant  illustration  of  the  blocking  of  Government 
action  by  local  jealousies.  Apparently  local  jeal- 
ousies alone  stood  in  the  way  of  lower  rates,  for  the 
Minister  of  Finance,  Mr.  von  Miquel,  had  admitted 
that  the  lowering  of  the  particular  rates  in  question 
would  result  in  an  increase  of  revenue.  All  this 
time  there  was  a  large  empty  car  mileage  from  Alsace- 
Lorraine  to  the  Ruhr;  for  the  number  of  tons  of 
coke  sent  from  the  Ruhr  to  Alsace-Lorraine  was 
from  tw^o  to  three  times  as  large  as  the  number  of 
tons  of  iron  ore  sent  from  Alsace-Lorraine  to  the 
Ruhr.  In  April,  1901,  the  Government  again  took 
up  the  vexed  question,  hoping  to  be  able  to  dispose 
of  it  by  giving  the  Alsace-Lorraine  people  reduced 
rates  on  coke,  in  return  for  the  reduction  on  iron  ores 
to  be  given  to  the  Ruhr  people.  Alarm  at  the  in- 
creasing competition  from  the  American  steel  and 
iron  industry  was  what  induced  the  Government 
thus  to  reopen  an  annoying  controversy.* 

The  conditions  of  the  problem  which  here  con- 
fronted the  Government  need  to  be  more  fully 
brought  out.  The  Ruhr  district  and  the  Saar  dis- 
trict in  Alsace-Lorraine-Luxemburg  produce,  re- 
spectively, 39  per  cent  and  36  per  cent  of  the  pig  iron 
produced  in  Germany. f  In  other  words,  they  are, 
as   iron   producers,   of  equal   importance.     Yet   in 

*  Stahl  und  Eisen,  February  15  and  April  i,  1900;  and  March  15, 
1901  ;  and  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  March 
30,  1898  ;   March  8  and  April  29,  1899  ;   and  April  13,  1 901. 

t  Stahl  und  Eisen,  February  15,  1901. 


THE   CONFLICT   OF   LOCAL   INTERESTS  29 

1899  the  Ruhr  district  sent  by  rail  into  the  territory 
which  extends  from  Bremen  and  Hamburg  in  the 
west  to  Koenigsberg  in  the  east  394,000  tons  of 
manufactures  of  steel  and  iron,  whereas  the  Saar 
district  sent  only  85,000  tons.  Again,  to  the  impor- 
tant territories  comprising  the  provinces  of  Bran- 
denburg and  Saxony,  the  Duchy  of  Anhalt  and  the 
Thueringian  States,  the  Saar  region  sent  only  108,000 
tons  of  iron  and  steel,  whereas  the  Ruhr  district  sent 
480,000  tons.  In  other  words,  so  far  as  trade  de- 
pendent on  the  railways  is  concerned,  the  Saar  dis- 
trict is  almost  shut  out  from  northern,  central  and 
eastern  Germany.  On  the  other  hand,  it  has  practi- 
cally a  monopoly  of  the  iron  and  steel  trade  with 
southern  Germany  and  Switzerland.  In  1899  it  sent 
into  Alsace,  the  Bavarian  Palatinate,  the  Grand 
Duchy  of  Hesse,  Wuertemberg,  Bavaria  and  Switzer- 
land a  total  of  627,000  tons  of  manufactures  of  steel 
and  iron,  whereas  the  Ruhr  district  shipped  only 
159,000  tons.  Similarly,  the  iron  and  steel  pro- 
ducers of  the  Province  of  Silesia  have  a  monopoly  of 
the  trade  of  Silesia,  Posen,  parts  of  East  Prussia  and 
the  foreign  territory  lying  immediately  to  the  east  of 
Silesia.* 

This  apportionment  of  the  trade  of  Germany 
among  the  several  producing  and  distributing  cen- 
tres,   making    them    comparatively    non-competing 

*  Statisiik  der  Gueterbewegung  auf  Deutschen  Eisenbahnen,  nach  Vtr- 
kehr sbezir ken  gear dnet,  1 899. 


30  RAILWAY   RATES 

groups,  is  common  to  all  articles  of  trade  which 
are  bulky  and  comparatively  low-priced.  It  is 
Localization  of  broken  down  in  places  by  the  water- 
Trade  and  In-  ways  and  by  the  occasional  wide  dif- 
'^^^^^y  ferences  in  the  cost  of  production  of 

an  article  in  different  centres  of  production.  For 
instance,  the  Saar  district  sends  considerable  quan- 
tities of  steel  and  iron  into  the  interior  of  Germany 
by  way  of  the  French  and  Belgian  canals  and  rivers, 
the  North  Sea,  the  Baltic  and  the  German  rivers. 
This  trade  amounts  to  about  50  per  cent  of  that  which 
goes  directly  by  rail.*  Again,  Thomas-process  pig 
iron  and  puddle  iron  are  produced  much  more 
cheaply  in  the  Ruhr  than  in  Silesia,  and  therefore 
the  Ruhr  iron  and  steel  manufacturers  sell  these 
particular  products  rather  freely  in  the  territory 
otherwise  reserved  to  the  Silesian  iron  and  steel 
industries. 

In  spite  of  these  exceptions  and  similar  ones  in 
other  industries,  it  remains  true  that  the  scheme  of 
railway  rates  based  on  a  uniform  haulage  charge  per 
ton-mile  does  to  a  remarkable  degree  apportion  the 
trade  of  Germany  in  a  mechanical  way  among  the 
several  producing  and  distributing  centres.  This 
scheme  separates  the  different  sections  of  Germany, 
one  from  the  other,  in  the  same  way  as  did  the 
customs  barriers  which  the  several  German  States 


*  Zeiischrift  fuer  Binuenschiffahri,  1901,  Heft  ii  ;   and  Statistik  der 
Gueterbewegung  auf  Deutschen  Eisenbahnen,  1899  and  1900. 


THE   CONFLICT   OF   LOCAL   INTERESTS  31 

maintained  one  against  the  other  up  to  the  time  of 
the  formation  of  the  North  German  Zollverein  or 
customs  union,  which  last  was  extended  and  per- 
petuated by  the  German  Empire,  created  in  large 
part  for  that  very  purpose.  The  opposition  to-day 
under  the  Empire  to  the  introduction  of  tapering 
rates  and  rates  based  on  the  principle  of  charging 
what  the  traffic  will  bear  is,  indeed,  precisely  the 
same  kind  of  opposition  as  that  which  had  to  be 
overcome  before  the  Zollverein  itself  could  be  estab- 
lished* The  situation  was  described  in  1894  by 
the  Minister  of  Finance,  in  the  following  terms: 
"This  opposition  of  the  agricultural  interests  of  the 
West  to  tapering  rates  is  but  one  of  many  illustra- 
tions of  the  unexpressed  desire  of  the  various  sections 
of  the  Empire  to  reestablish  sectional  protection  by 
means  of  the  regulation  of  railway  rates.  If  that 
desire  is  allowed  to  realize  itself,  we  shall  return  to 
the  conditions  of  1820.  A  unified  State  cannot 
undertake  to  balance  the  interests  of  one  section 
against  those  of  another.  The  Prussian  railways 
were  consolidated  under  the  State  in  order  that  they 
might  promote  trade  throughout  the  length  and 
breadth  of  the  land.  If  their  efforts  to  develop  trade 
and  industry  are  to  be  defeated  by  local  jealousies, 


*  F.  Ulrich  :  Staffeliarife  unci  Wassersirassen  ;  and  Staatseisenbahnen, 
Staatswasserstrassen,  und  die  Deutsche  Wirtschaftspoliiik.  Compare  also 
Sympher:  Die  Wirthschaftliche  Bedeutung,  etc.;  Stahl  und Eisen,  Janu- 
ary, 1899. 


32  RAILWAY  RATES 

German  industry  will  be  distanced  by  the  industries 
of  other  countries."  * 

Tapering  rates  and  rates  based  on  what  the  traffic 
will  bear  would  lead  to  an  extraordinary  develop- 
ment of  trade  and  railway  traffic  in  Germany.  Their 
introduction  would  go  far  toward  making  the  whole 
of  Germany  into  a  common  market,  to  which  the 
different  producing  and  distributing  centres  would 
have  access,  and  thus  give  producers  and  consumers 
the  benefits  of  competition  which  now  exists  only  in 
a  modified  form.  Manifestly  many  resources  that 
now  lie  unused  would  be  developed.  On  the  other 
hand,  many  vested  interests  in  trade  and  industry 
dependent  for  their  existence  upon  the  new  form 
of  sectional  protection  would  suffer.  The  Prussian 
Government  has  been  too  careful  of  those  interests, 
failing  to  realize  that  the  progress  and  development 
of  a  country  means  necessarily  the  destruction  of 
property  values  in  one  place  and  the  building  up  of 
property  values  in  another.  Furthermore,  the  Prus- 
sian Government  has  found  that  constituencies 
carry  their  grievances  concerning  the  management 
of  the  railways  into  Prussian  State  politics,  or  into 
German  national  politics,  to  the  extent  of  making 
the  assent  of  their  parliamentary  representatives  to 


*  Quoted  from  the  debates  in  the  Prussian  Diet  by  E.  von  Eynern  in 
Zwanzig  Jahre  Kanalk'dmpfe,  tin  Beitrag  zur  GeschichU  des  Deutschen 
Parteiwesens. 

Mr.  von  Eynern  was  Chairman  of  the  Parliamentary  Committees 
appointed  to  report  upon  the  recent  Prussian  canal  bills. 


THE   CONFLICT   OF   LOCAL   INTERESTS  33 

measures  of  first  importance  proposed  by  the  Prus- 
sian Government,  or  by  the  Imperial  Government, 
conditional  upon  what  shall  or  shall  not  be  done  in 
respect  to  railway  rates.  That  practice  has  so  em- 
barrassed the  Prussian  Government  that  the  latter 
has  repeatedly  abstained  from  making  reductions 
in  rates,  even  after  it  had  been  thoroughly  convinced 
that  the  reductions  contemplated  were  demanded 
by  the  permanent  interests  of  trade  and  industry. 
Finally,  the  Prussian  Government  has  for  years 
treated  the  railways  as  a  source  of  revenue,  upon 
which  it  could  draw  in  order  to  avoid  the  necessity 
of  asking  Parliament  for  additional  taxes  or  in 
order  to  remit  taxes  in  Prussia,  in  return  for  Prus- 
sian support  in  the  Imperial  Reichstag.  This  com- 
plication has  oftentimes  made  it  inconvenient  to 
reduce  railway  rates;  and  at  such  times  the  Gov- 
ernment has  sought  shelter  behind  the  local  jeal- 
ousies, playing  off  one  section  of  the  country  against 
another.  But  of  this  matter  of  dependence  on 
railway  revenue,  more  will  be  said  in  a  subsequent 
chapter. 


CHAPTER  II 

LOCAL  AND  PERSONAL  DISCRIMINATION 

When  the  railways  of  Prussia,  previously  to 
nationalization,  adopted  in  1877  a  uniform  classi- 
fication of  freight  and  a  common  scheme  of  railway 
charges,  they  realized,  of  course,  that  it  would  be 
impossible  to  adhere  absolutely  to  a  hard  and  fast 
system  of  rates.  Accordingly,  they  provided  that 
what  are  known  as  exception  tariffs  should  be  made 
whenever  the  needs  of  trade  and  industry  should 
demand.  Under  that  arrangement  the  State  rail- 
ways and  the  private  railways,  particularly  the  latter, 
retained  many  of  the  special  rates  that  had  been  in 
force  previous  to  1877.  The  private  railways  also 
continued  the  practice  of  making  secret  rates. 

Hence,  when  the  Prussian  Government,  in  1880 
and  the  years  immediately  following,  acquired  the 
private  railways,  it  found  many  of  these  special  and 
secret  rates  in  force.  Care  was  taken  in  abolishing 
these  rates,  in  order  to  avoid  sudden  and  violent  dis- 
locations in  the  established  course  of  business.  In 
1882,  however,  the  Government  took  an  important 
step,  and  did  away  entirely  with  the  special  rates  on 

34 


LOCAL   AND    PERSONAL   DISCRIMINATION         35 

imported  grain  and  flour  from  Bremen  and  Hamburg 
to  Rhenish  Prussia  and  Westphalia;*  it  instructed 
the  Railway  Department  not  to  swamp  the  home 
industries  by  flooding  the  country  with  the  surplus 
produce  of  foreign  countries.  Two  years  later,  in 
October,  1884,  the  Minister  of  Public  Works  laid 
down  the  general  principles  that  were  to  guide  the 
Railway  Department  in  making  exception  tariffs. f 
Manufacturing  and  agriculture  were  to  be  fostered 
by  low  rates  on  raw  materials;  the  products  of  do- 
mestic industries  were  to  have  special  rates  when 
shipped  to  points  in  Germany  at  which  foreign  com- 
petition had  to  be  met;  German  export  trade  was 
to  be  encouraged;  and  German  agencies  of  trans- 
portation, particularly  the  State  railways,  were  to  be 
protected  against  competition  from  foreign  railways 
and  foreign  waterways. 

In  the  eleven  years  ending  with  1896-97,  fully  one- 
half  of  the  traffic  on  the  Prussian  railways  was  car- 
ried at  "exception  rates";  and  since  1897  the 
proportion  has  risen  to  60  per  cent. J  The  "excep- 
tion rates,"  however,  apply  the  principle  of  taper- 
ing rates  to  a  very  slight  extent  only,  and  they  have, 

*  Zeitung  des  Vereins  Deiitscher  Eisenbahnverzualtimgen,  September 
3,  1898;   and  Archiv  fuer  Eisenbahnzvesen,  1901,  Heft  2. 

t  Eisenbahntarife  und  VVasserfrachten,  issued  by  the  Verein  fuer 
Socialpolitik. 

X  Zeittmg  des  Vereins  Deutscher  Eisenbahnverwaltungen,  June  11, 
1898;  or  Bulletin  of  the  Intertiational  Kaihvay  Congress,  January,  1899. 
The  British  Blue  Book,  Commercial  No.  2,  1898,  Bounties  to  Ships  and 
Preferential  Railway  Rates,  gives  a  list  of  the  exception  rates  in  force  in 
1897. 


S6 


RAILWAY   RATES 


therefore,  not  met  the  pressing  need  in  Germany — 
namely,  the  development  of  long-distance  traffic. 
To  illustrate:  from  1889  to  1897  the  average  length 
of  haul  per  ton  of  traffic  carried  at  *' exception  rates" 
actually  fell  from  73  miles  to  70 ;  while  during  the 
same  time  the  average  length  of  haul  of  the  "spe- 
cial tariff  III"  traffic  remained  stationary  at  73 
miles.  It  is  true  that  a  change  in  rates  made  in 
1897  subsequently  raised  the  average  haul  for  the 
former  class  of  traffic  from  70  miles  in  1898  to  79 
miles  in  1889.  But  much  of  that  increase,  in  respect 
to  development  of  total  long-distance  traffic,  was  an 
apparent  increase  only,  since  it  was  effected  by  trans- 
ferring to  the  exception -rate  class  a  large  part  of 
the  specially  long-distance  portion  of  the  traffic 
already  existing  in  the  "special  tariff  III"  class* 

*  Die  Vet-waltung  der  Oeffentlichen  Arbeiten  in  Pretissen,  i8go  bis  igoo, 
by  the  Minister  of  Public  Works. 

Exception -RATE  Tr.\ffic 


Average  haul  per  ton,  in  miles 

Proportion  borne  by  this  traffic  to  the  total 

traffic,  per  cent 

Receipts  per  ton-mile,  in  cents 


1889 


73 

47 
0.996 


1896 


70 

45 
0.941 


1899 


79 

63 
0.893 


Special  Tariff  III  Tr.a.ffic 


Average  haul  per  ton,  in  miles 

Proportion  borne  by  this  traffic  to  the  total 
traffic,  per  cent 


1889        1896        1899 


73 
31 


Receipts  per  ton-mile,  in  cents I.014 


73 

32 
1. 02 1 


56 

17 
1-035 


LOCAL    AND    PERSONAL   DISCRIMINATION 


37 


—  coal  and  many  other  raw  materials.  The  average 
haul  of  the  ''special  tariff  III"  class  of  freight  fell 
from  75  miles  in  1896  to  56  miles  in  1899. 

Let  us  now  pass  from  classification  of  rail  traffic 
to  distribution  of  total  traffic  between  the  railways 
and  the  waterways. 

Upon  the  Rhine  the  freight  rates  are  fixed  by  ves- 
sels with  a  capacity  of  600  tons.*  These  rates  the 
Prussian  railways  can  and  do  meet  without  difficulty, 
The  Rhine  sup-  whenever  the  Government  allows  the 
plants  the  Rail-  Railway  Department  to  charge  on 
"^^^  the    basis  of    what    the    traffic   will 

bear.  For  example,  in  order  that  German  coal 
may  meet  the  competition  of  English  coal,  the 
Government  allows  the  Department  to  make  a  se- 
ries of  special  rates  to  Dutch  ports  on  daily,  weekly, 

Coke  and  Coal  Traffic, 
included,  since  1 899,  in  the  exception-rate  traffic 


1889 

1896 

1899 

Average  haul  per  ton,  in  miles 

Proportion  borne  by  this  traffic  to  the  total 
traffic,  per  cent 

69 

43 
0.958 

74 

44 
0.865 

Receipts  per  ton-mile,  in  cents 

All  Traffic 

1889 

1896 

1899 

Average  haul  per  ton,  in  miles 

Receipts  per  ton-mile,  in  cents 

76 
1-339 

72 
1-325 

74 
1-253 

*  Sympher  :    Die  Wirthschaftliche  Bedeutung,  etc.,  and  Vierteljahres- 
hefte  zur  Statistik  des  Deutschen  Reichs,  1900,  Heft  2. 


38  RAILWAY  RATES 

bi-weekly  and  tri-weekly  shipments  in  train-load 
lots  of  200  to  300  tons.  As  a  result,  the  railways 
carry  each  year  to  Dortrecht,  Amsterdam  and  Rot- 
terdam about  2,500,000  tons  of  coal,  whereas  the 
Rhine  vessels  carry  to  these  markets  only  170,000 
tons.  The  total  traffic  in  coal  carried  down  the 
Rhine,  amounting  to  about  1,300,000  tons  a  year 
as  compared  with  4,500,000  tons  sent  by  rail,  is 
confined  almost  entirely  to  coal  destined  to  points 
in  Holland  which  cannot  be  reached  by  railway; 
and  it  is  carried  in  vessels  of  a  capacity  of  only  100 
to  250  tons.* 

But  though  the  Prussian  railways  can,  when  they 
are  permitted,  compete  successfully  with  the  Rhine 
vessels,  they  do  not  do  so  as  a  rule.  Thus,  in  1900, 
there  were  carried  by  way  of  the  Rhine  to  Ruhrort, 
Duisburg  and  Hochfeld  2,125,000  tons  of  Spanish 
and  Swedish  iron  ores,  of  which  1,329,000  tons  were 
reshipped  by  rail  to  the  smelters  in  the  Ruhr  dis- 
trict, a  distance  of  20  to  30  miles.  In  the  same 
year  there  were  carried  by  all-rail  route  from  the 
Dutch  and  Belgian  ports  to  the  Ruhr  smelters 
only  466,000  tons  of  Spanish  and  Swedish  ores.  In 
1900  the  Ruhr  district  shipped  by  all-rail  route  to 
the  Bavarian  Palatinate,  Wuertemberg,  Bavaria  and 

*  Statistik  der  Gtuterbewegung  auf  Deutschen  Eisenbahnen  ;  Jahresbe- 
richt  der  Central- Cotnmissitn  fuer  die  Rheinschiffahrt,  1900  ;  Zeitschrift 
flier  Binne-nschiffahrt,  1901,  Heft  5  ;  and  Zweiter  Jahresbericht  der  Ban- 
dekkammer  zu  Rubrort  ftur  das  Jahr  i8gg. 


LOCAL    AND'  PERSONAL    DISCRIMINATION         39 

Switzerland  957,000  tons  of  coal  as  against  3,800,000 
tons  shipped  first  by  rail  to  the  Rhine  ports,  then 
by  way  of  the  Rhine  to  Mayence  and  Mannheim, 
and  then  by  rail  to  points  in  the  above-named  ter- 
ritory. Coal  sent  from  the  Ruhr  to  Berlin  goes  by 
rail  to  Hamburg  at  special  rates  (granted  for  the  pur- 
pose of  meeting  the  competition  of  English  coal),  and 
thence  in  vessels  of  200-ton  capacity  by  way  of 
the  Elbe  and  the  Havel  to  Berlin.  In  1899  about 
150,000  tons  took  this  combined  rail  and  water  route, 
and  only  50,000  tons  went  by  the  direct  all-rail  route. 
The  Hamburg- Berlin  trade  is  a  comparatively  new 
development,  the  shipments  by  this  roundabout  route 
having  averaged  only  14,000  tons  a  year  in  the  period 
1889  to  1894.* 

Finally,  one  may  observe  of  the  total  trade  of  the 
Ruhr  district,  which  in  1900  amounted  to  52,652,000 
tons,  that  not  less  than  25  per  cent  entered  and  left 
the  district  by  way  of  the  river  Rhine. f  The  dispro- 
portionate share  which  the  Rhine  gets  of  the  traffic 
of  other  particular  districts  within  its  sphere  of  in- 
fluence is  set  forth  in  another  place.  It  may  be 
mentioned  here  that  of  the  general  trade  between 
Germany  and  Holland  49  per  cent  of  the  exports 

*  Sympher :  Die  Wasserwirthschafiliche  Vorlage ;  and  Haus  der  Ab- 
geordneten,  Aktenstueck,  N'o.  202,  May  24,  1895 

t  Statistik  der  Gueterbeivegung  auf  Deutschen  Eisenbahnen,  ftach  Ver- 
kehrsbezirken  geordnet,  1900;  ^.tlA  Jahres-Bericht  der  Central-  Commission 
flier  die  Rhein-Schiffahrt,  1900.  Compare  also  Sympher:  Die  Wirth- 
scha/tlicke  Bedeuiting  des  Rhein-Elbe  Kanals. 


40 


RAILWAY   RATES 


and  82  per  cent  of  the  imports  go  by  water.*  The 
railways  are  especially  handicapped  in  competing  for 
the  carriage  of  imported  commodities,  because  the 
Government  holds  that  they  should  not  neutralize 
the  protective  duties. 

The  distribution  between  the  railways  and   the 

Elbe  of  the  traffic  between  Hamburg  and  what  is 

known  as  the  Upper-Elbe  territory  affords  another 

example  of   the  perverting  influence 

The  Elbe  conquers      r     ,i  •  .•  ^  <•         -i 

the  Railway  °^    ^^^    cxistmg   scheme    of   railway 

charges.  The  territory  here  referred 
to  includes  the  region  lying  along  the  Elbe  to  the 
Bohemian  frontier,  the  region  along  the  Havel 
and  the  Spree  to  Berlin,  and  the  region  along  the 
Oder  to  Breslau  in  Silesia.  These  points  are  reached 
by  vessels  which  carry  an  average  load  varying,  on 
different  parts  of  the  system,  from  200  to  450  tons. 
The  railway  that  serves  all  this  territory  is  known 
as  the  Berlin-Hamburg  railway,  and  under  the  re- 
gime of  private  railways  the  value  of  the  freight  car- 

*  p.  Stubmann  :  Holland  und sein  Deutsches  Hinterland  in  ihremgegen- 
seitigen  IVaarenverkehr. 


Exports  to  Holland 

Imports  from  Holland 

By  River 

By  Rail 

By  River 

By  Rail 

% 

/o 

% 

% 

1873     .     .     . 

69 

20 

55 

43 

1878     .     .     . 

59 

34 

70 

27 

1883     .      .      . 

SI 

44 

71 

26 

1888     .      .      . 

47 

47 

71 

25 

1893      .      .      . 

45 

51 

73 

23 

1898     .      .      . 

49 

46 

82 

13 

LOCAL   AND    PERSONAL   DISCRIMINATION 


41 


ried  by  it  vastly  exceeded  the  value  of  the  freight 
carried  by  the  Elbe.  Within  a  few  years  after  the 
nationalization  of  the  railways  and  the  curtailment 
of  special  rates  the  situation  had   been  reversed* 


*  Tabdlarische   Uebersickten  des  Haniburgischen  Handels  zusammen- 
gestelU  von  dent  Handelsstatisiischen  Bureau,  current  issues. 


Carried  into  Hamburg  from  the  Upper-Elbe  Territory 
(000,000  omitted) 


By  River 
(Annual  Average) 


Weight  in     Value  in 
Tons  Marks 


By  Rail 
(Annual  Average) 


Weight  in    Value  in 
Tons  Marks 


1851-60   . 

1861-70   . 

1871-80   . 

1881-90   . 

1891-95   . 

I 896-1 900 
1896 
1900 


O.IO 
0.16 
0.24 
0.64 
0.87 
1. 16 
I.OI 

1.30 


32,2 

55-4 
91.6 
276.4 
377-1 
439-9 
447-7 
485.8 


0.06 

O.IO 

0.14 
0.14 
0.19 
0.22 
0.20 
0.26 


152.8 
232.2 

304-5 
315-4 
401.4 
429.1 
406.3 
508.9 


Sent  from  Hamburg  into  the  Upper-Elbe  Territory 


Weight  in 
Tons 


Value  in 
Marks 


Weight  in 
Tons 


Value  in 
Marks 


1861-70   . 

1871-80   , 

1881-90   . 

1891-95   . 

I 896-1 900 
1899 
1900 


0.17 
0.25 
0.61 
I.OI 
I.7I 
1.80 
1.77 


470.8 
640.3 
690.2 
705-5 


0.09 
0.16 
0.13 
0.20 
0.23 
0.22 
0.29 


329-5 
363.8 
362.7 

389-1 


Compare  also  :  Zei/ung  des  Vereins  Deutscher  Eisenbaknverivaliungen, 
July  20,  1898;  and  Zeitschrift  fuer  Binnenschiffahrt,  1898,  Hefte  8,  11 
and  13. 


42 


RAILWAY   RATES 


For  example,  in  the  period  from  1891  to  1895  the 
annual  value  of  the  river  traffic  was  848,000,000 
marks,  while  that  of  the  railway  traffic  was 
731,000,000.  The  traffic  in  food-stuffs,  fuel,  build- 
ing materials,  raw  materials  and  articles  partially 
manufactured  now  goes  almost  entirely  by  water. 
More  than  25  per  cent  according  to  value,  even  of 
such  high-class  freight  as  articles  described  as  "  Kunst 
und  Industrieerzeugnisse,"  goes  by  water.  It  is 
only  in  the  carriage  of  the  highest-class  freight  of  all, 
"articles  of  fashion,"  that  the  railway  has  the  mo- 
nopoly of  the  business  of  transportation.* 

A  change  similar  to  the  one  just  described  occurred 
in  the  distribution  of  the  through  freight  traffic  be- 
tween Hamburg  and  Austria.  In  the  seventies  the 
average  annual  number  of  Elbe  vessels  arriving  at 


*  Loco  citato. 


Carried  into   Hamburg 
FROM  THE  Upper-Elbe 
Territory 

Carried  into  the  Upper- 
Elbe  Territory  from 
Hamburg 

(In  millions  of  marks,  in 
1900) 

(In  millions  of  marks,  in 
1900) 

By  Rail 

By  River 

By  Rail 

By  River 

Food-stuffs 

Fuel  and  building  ma- 
terials    

Raw  materials  and  articles 
partially  manufactured . 

Manufactures  and  articles 
of  fashion        .... 

"  Kunst  und  Industrie- 
ezeugnisse "    .     .     .     . 

54-5 
2.4 

67.6 
161.6 
199.7 

303-5 
13-2 

104.0 

5.0 

83.2 

77-3 

2.0 

215.I 

32.8 
61.9 

212.5 
18.6 

438.8 

5.6 

30.0 

LOCAL    AND    PERSONAL    DISCRIMINATION         43 

Hamburg  from  Laube-Tetschen,  in  the  Austrian 
province  of  Bohemia,  was  176.  By  1882  the  num- 
ber had  become  567.  Upon  the  nationahzation  of 
the  German  railways,  the  Austrian  Northwest  Rail- 
way Company  founded  the  Austrian  Northwest 
Steamship  Company,  to  navigate  the  Elbe  between 
Laube-Tetschen  and  Hamburg.  In  a  few  years  the 
great  bulk  of  the  traffic  between  Austria  and  Ham- 
burg via  Bohemia  had  gone  to  the  Elbe.*  In  1901 
the  Austrian  Northwest  Steamship  Company  was 
operating  nine  express  freight  steamers  which  made 
no  stop  between  Hamburg  and  Laube-Tetschen. 
In  addition,  it  had  in  commission  29  steamers  and 
500  barges  for  the  carriage  of  ordinary  through 
freight  and  local  freight. 

The  territory  lying  between  Berlin  and  Stettin, 

on  the  Baltic  Sea,  is  served  by  a  railway  which  is 

85  miles  long  and  a  waterway  which 

Stettin  versus  .  ^^       1  ^7-11       i    , ,  •   , 

„     ,  is  120  miles  long.     1  he  latter  consists 

Hamburg  o 

of  the  Oder  and  the  Finow  canal. 
The  maximum  capacity  of  the  vessels  that  can  use 

*  Tabellarische  Uebersichten  des  Hamburgischen  Handels  im  Jahre 
jgoo,  zusammengestellt  von  deni  handelsstatistischen  Bureau  ;  and  Statistik 
der  Gueterbewegung  auf  Deutschen  Eisenbahnen,  1900. 


Tons  of  Freight  exchanged  between  Hamburg 
Austria-Hungary  in  1900 

and 

By  River 

By  Rail 

Up  stream 

701.900 
333-700 

70.600 
91.800 

44 


RAILWAY  RATES 


the  canal  is  only  1 70  tons.  The  canal,  nevertheless, 
has  a  traffic  density  three  times  the  average  traffic 
density  of  the  railways  of  all  Germany,  and  pays 
interest  on  10,000,000  marks,  which  is  five  times 
its  capital  cost.  The  transportation  charges  on 
the  waterway  are  but  one-half  as  high  as  the 
charges  on  the  competing  railway.  The  traffic  of 
the  railway,  therefore,  is  not  considerable,  and  is 
limited  to  certain  classes  of  freight  in  the  transporta- 
tion of  which  the  saving  of  time  is  of  great  impor- 
tance. In  1900,  for  example,  the  railway  carried  into 
Berlin  only  19 1 ,000  tons  of  freight,  and  carried  out  only 
86,000  tons.  The  canal,  on  the  other  hand,  brought 
to  Berlin  more  than  1,000,000  tons  of  freight.* 

Stettin  is  the  only  Prussian  port  of  importance. 
It  has  of  late  been  losing  business  to  Hamburg, f  and 

*  v.  Kurs  \n/ahrbuecher  fuer  Nationaloekonomie,  November,  1 901. 
t  Stettins  Handel,  Industrie  und  Schiffakrt  im  Jahre  i8gy.    (Chamber 
of  Commerce  Report.) 

Sugar,  in  Tons,  shipped  by  River  from  Breslau  to  :  — 


Hamburg 
Stettin  . 


1888 


7,800 
28,600 


1897 


58,700 
28,400 


Total  Freight,  in  Tons,  sent  by  River  from  Breslau  to  :  — 


1897 


Hamburg 
Berlin    . 
Stettin  . 


77,000 
497,000 
134,000 


LOCAL    AND    PERSONAL   DISCRIMINATION        45 

this  fact  causes  the  Prussian  Government  much  dis- 
quietude. The  Government  does  not  deem  itself 
at  Hberty,  however,  to  remedy  the  evil  by  giving 
Stettin  lower  railway  rates,  which  would  offset  the 
advantage  accruing  to  Hamburg  from  recent  im- 
provements in  the  waterways  between  Breslau  and 
Berlin  and  Hamburg.  Such  a  ready  solution  of  the 
problem  is  not  possible ;  for,  while  the  Prussian  Gov- 
ernment and  the  German  people  generally  believe 
it  a  patriotic  act  to  cut  railway  rates  against  foreign 
cities,  such  as  Rotterdam,  they  would  not  approve 
any  departure  from  their  uniform  system  of  rates 
for  the  purpose  of  strengthening  one  German  city 
as  against  another.  But  what  may  not  be  done 
through  the  agency  of  the  railways  may  be  attempted 
through  another  agency.  The  Prussian  Govern- 
ment proposes  to  build  between  Berlin  and  Stettin 
a  new  waterway,  at  a  cost  of  41,000,000  marks,  which 
shall  carry  vessels  of  a  capacity  of  650  tons.  It  is 
believed  that  the  transportation  charges  on  the  new 
waterway  will  average  0.381  cent  per  ton-mile,  in- 
cluding canal  tolls  and  port  charges.* 

In  1890  Upper  Silesia  exchanged  by  means  of  the 
State  railways  and  the  river  Oder  2,092,000  tons  of 
freight  with  Berlin,  the  Province  of  Brandenburg 
and  Hamburg.     In   the  following  year  the  Oder- 

*  Zeitschrift  fuer  Binnenschiffahrt,  1901,  Hefte  2  and  6,  and  supple- 
ments to  Hefte  4  and  5  ;  Zeitung  des  Vereins  Deuischer  Eisenbahnver- 
•waltungen,  February  20,  1901  ;  and  Berichte  ueber  Stettins  Handel^ 
Industrie  und  Schiffahrt,  current  issues. 


46 


RAILWAY   RATES 


The  Oder  relieves 
Silesia 


Spree  canal  was  opened,  and  the  volume  of  traffic 
exchanged  between  the  two  regions  rose  to  2,662,000 
tons.  That  increase  was  due  to  the 
fact  that  the  water  traffic  rose  from 
243,000  tons  to  871,000  tons,  a  rec- 
ord which  was  further  increased  to  1,256,000  tons 
in  1896.  In  1897  the  Oder  was  deepened  and  im- 
proved, so  as  to  carry  vessels  with  a  capacity  of  450 
tons,  and  the  water-borne  traffic  thereupon  rose 
to  1,798,000  tons  in  1899.  Meanwhile,  the  traffic 
exchanged  by  rail  had  actually  fallen  from  1,849,000 
tons  in  1890  to  1,746,000  tons  in  1899.* 

The  foregoing  review  has  shown  that  in  the  ter- 
ritories drained  by  the  Rhine,  the  Elbe  and  the  Oder 
—  the  three  great  rivers  of  Germany  —  the  water- 
ways are  gaining  constantly  and  rapidly  upon  the 


*  Baurat  Sympher:   Zeitschrift  fuer  Binnenschiffahri,  1900,  Hefte  18 
and  22. 

Traffic  exchanged  by  Rail  and  by  Water  between  Upper  Silesia, 
ON  THE  One  Hand,  and  Berlin,  the  Province  of  Brandenburg 
AND  Hamburg,  on  the  Other  Hand,  in  Tons 


Total  Traffic 

Coal 

Other  Freight 

Grand  Total 

Rail 

Water 

Rail 

Water 

Rail 

Water 

Rail  and 
Water 

1883 
1890 
1891 
1896 
1897 
1899 

1,186,000 
1,849,000 
1,791,000 
1,382,000 
1,470,000 
1,746,000 

198.000 
138,000 
408,000 
531.000 
642,000 
814,000 

1,072,000 
1,647,000 
1,563,000 
1,178,000 
1,263,000 
1,482,000 

37,000 
105,000 
463,000 
725,000 
835,000 
984,000 

114,000 
202,000 
228,000 
209,000 
207,000 
264,000 

235,000 

243,000 

871,000 

1,256,000 

1,477,000 

1,798,000 

1,421,000 
2,092,000 
2,662,000 
2,638,000 
2,947,000 
3,544,000 

LOCAL    AND    PERSONAL    DISCRLMINATION         47 

railways  in  the  carriage  of  all  bulky  and  long-distance 
freight,  except  in  those  comparatively  rare  cases 
where  the  Government  is  willing  to  depart  from  its 
hard  and  fast  scheme  of  rates.  It  would  be  difficult 
to  find  a  more  striking  example  of  long-continued 
impediment  to  trade  and  industry  occasioned  by 
excessive  railway  charges  than  in  the  commerce  be- 
tween Hamburg,  Brandenburg,  Berlin  and  Upper 
Silesia.  When  the  pressure  was  removed,  now  at 
one  point,  now  at  another,  in  the  manner  indicated, 
the  traffic,  as  we  have  just  seen,  mounted  by  leaps 
and  bounds.  And  this  is  not  all.  The  facts  show 
that  the  rigid  scheme  of  rates,  devised  and  main- 
tained to  prevent  discrimination,  results  precisely 
in  discrimination  to  a  high  degree  in  favor  of  dis- 
tricts with  waterways,  as  against  those  which  do  not 
possess  this  means  of  relief. 

Turning  now  to  certain  more  general  aspects  of 
the  subject  of  the  sharing  of  traffic  between  water- 
ways and  railways,  and  its  effect  upon  industry,  we 
Waterways  gain  ^^^  that  since  1880  the  rivers  of 
.tpon  the  Rail-  Germany,  and  to  a  less  extent  the 
'^^■^■^  canals,  have  constantly  grown  in  im- 

portance as  factors  in  the  development  of  trade. 
In  the  period  from  1875  to  1900  the  length  of  the 
waterways,  in  proportion  to  the  combined  length  of 
waterways  and  railways,  fell  from  27  per  cent  to  17 
per  cent;  but  nevertheless  the  proportion  of  the 
water  traffic  to  the  total  of  water  and  rail  traffic  rose 


48 


RAILWAY   RATES 


from  21  per  cent  to  24  per  cent  *  This  change  is 
reflected  in  the  figures  for  the  volume  of  traffic  upon 
the  waterways,  which  rose  from  290,000  ton-miles 
per  mile  of  watervs^ay  to  1,150,000  tons;  while  the 
density  of  traffic  upon  the  railways  increased  only 
from  410,000  to  740,000.  It  is  generally  admitted 
in  Germany  that  this  increase  of  the  water  traffic 
was  effected  in  part  absolutely  at  the  expense  of  the 
railway  traffic  ;t  and  that  this  must  actually  have  been 
the  case  can  readily  be  understood  when  one  con- 
siders the  fact  that,  whereas  the  average  receipts  per 


*  Sympher:  Der  Verkehr  auf  Deutschen  Wasserstrassen  in  denjahren 
187 j  U7id  i8Sj;  Die  Zunahme  der  Binnenschiffahrt  in  Deutschland  von 
i8jj-gj;  and  Centralblatt  der  Bauverwaltung,  May  l6,  1900. 


1875 

1885 

1895* 

1898 

1900 

Proportion  borne  by 

the   waterways    to 

the  total  length  of 

waterways  and  rail- 

ways    .... 

27% 

21% 

18% 

17% 

17% 

Proportion  borne  by 

the  traffic    on   the 

waterways    to    the 

combined  traffic  on 

the  waterways  and 

the  railways     .     . 

21% 

22% 

22% 

25% 

24% 

Ton-miles  of  freight 

carried  per  mile  of 

water\yay   or    rail- 

M'ay :  — 

Waterways    . 

290,000 

480,000 

750,000 

1,000,070 

1,150,000 

Railways  .     . 

410,000 

450,000 

590,000 

680,000 

740,000 

t  Archiv  fuer  Eisenbahnwesen,  18S7  ;  Ober  Regierrungs-Rat  Todt, 
and  Lehmann  ;  E.  Heubach  :  Die  Verkehrsentiuickelung  auf  den  Wasser- 
strassen und  Eisenbahnen  des  Elbe-Odergebietes  ;  and  Zeitung  des  Vereins 
Deutscher  Eisenbahnverwaltungen,  Noyember  26,  1 898. 

*  Low  water  in  the  rivers  made  this  a  bad  year  for  transportation  by  water. 


LOCAL   AND    PERSONAL    DISCRIMINATION        49 

ton-mile  declined  15  per  cent  upon  the  railways, 
during  the  period  in  contemplation,  they  fell  about 
50  per  cent  upon  the  waterways.  At  present  the 
average  receipts  per  ton-mile  on  the  total  traffic  upon 
the  waterways  are  about  0.346  cent.  Upon  impor- 
tant groups  of  traffic  they  have  at  times  been  even  as 
low  as  0.069  cent  and  0.087  cent.  For  example,  in 
1898  the  receipts  per  ton-mile  on  Spanish  and  Swed- 
ish iron  ores  carried  on  the  Rhine  from  Rotterdam 
to  Ruhrort  fluctuated  between  0.069  cent  and  0.374 
cent.  During  the  same  year  the  Rhine  rates  on 
coal  from  Ruhrort  to  Mannheim  fluctuated  between 
0.087  cent  and  0.31 1  cent  per  ton-mile.  The  ex- 
tent to  which  in  general  the  rates  of  the  Rhine  rail- 
ways are  cut  under  by  the  Rhine  river-craft  is 
indicated  by  the  fact  that  from  1887  to  1891  the 
boats  increased  the  proportion  of  high  class  traffic 
to  their  total  traffic  from  11. 17  per  cent  to  13.06  per 
cent;  whereas  the  corresponding  figures  for  the 
trains  are  10.33  pcr  cent  and  11.04  pcr  cent. 

Upon  the  Rhine  the  transportation  charges,  as 
already  stated,  are  fixed  by  vessels  with  a  capacity 
of  600  tons,  the  largest  vessels  rising  to  2000  tons. 
The  length  of  carriage  per  ton  of  the  freight  varies 
from  125  miles  to  350  miles,  and  the  average  is 
about  200  miles.  In  the  period  from  1885  to  1898 
the  average  receipts  per  ton-mile  were  0.268  cent 
for  iron  ores,  0.208  cent  for  coal  and  0.381  cent 
for  grain.     It  will  be  remembered  that  the  railway 


50  RAILWAY  RATES 

export  rates  on  grain  begin  with  1.038  cents  per  ton- 
mile  for  the  first  125  miles  and  fall  to  0.495  ^^^^ 
for  distances  beyond  250  miles  exclusive  of  termi- 
nal charges.  The  ordinary  rates  per  ton-mile  on 
coal  and  iron  are  0.761  cent.  The  lowest  "excep- 
tion rate"  on  coal  is  0.433  cent,  the  lowest  one  on 
iron  ores  is  0.519  cent,  and  the  lowest  "exception 
rate"  on  iron  and  steel  is  0.415  cent.  The  lowest 
rate  of  any  sort  in  force  on  the  railways  of  Germany 
is  0.346  cent  per  ton-mile  for  distances  beyond 
218.5  miles.  It  applies  to  certain  calcium  salts  used 
in  the  manufacture  of  artificial  manures. 

Upon  the  Elbe  transportation  charges  are  fixed 
by  vessels  with  a  capacity  of  400  tons,  and  upon  the 
Oder  by  vessels  of  250  tons;  but  in  the  important 
traffic  between  Hamburg,  Berlin  and  Breslau  (in 
Silesia),  using  the  small  canals  and  rivers  connecting 
the  Elbe  and  the  Oder,  they  are  fixed  by  200-ton 
vessels.*  In  the  two  years  1895  ^^^  1^99  the  aver- 
age receipts  per  ton-mile  in  the  long-distance  traffic 
carried  in  barge  loads  upon  the  Elbe  and  Oder 
varied  from  0.176  cent  to  0.657  cent.f 

Upon  the  rivers  of  Germany,  in  general,  the  aver- 
age receipts  per  ton-mile  on  all  traffic  fluctuate  be- 
tween 0.176  cent  and  0.519  cent;  and  upon  the 
canals  they  range  from  0.346  cent  to  0.692  cent. 
On  the  other  hand,  the  average  receipts  per  ton-mile 
for  the  traffic  carried  by  the  railways  at  "exception 

*  Sympher :  Die  Wirtschaftliche  Bedeuiung,  etc. 

t  Zeitschrift  fuer  Binnenuhiffahrt,  1901,  Hefte  2,  3  and  5. 


LOCAL    AND    PERSONAL    DISCRLMINATION        51 

rates"  in  1899  were  0.893  cent.  During  the  17 
years  1882  to  1899  these  rates  had  fallen  just 
10  per  cent,  though  for  8  years  of  this  period, 
1884  to  1892,  they  were  absolutely  stationary  at 
0.938.*  Throughout  this  period  of  17  years  the 
"exception-rate"  traffic  constituted  no  less  than 
50  to  60  per  cent  of  the  total  traffic.  Of  the  re- 
mainder a  large  part,  or  30  per  cent  of  the  total, 
was  carried  as  "special  tariff  III"  class,  the  receipts 
from  which  remained  stationary  from  1887  to  1899 
at  1.014  cents  per  ton-mile. 

It  thus  appears  that,  so  far  as  the  development  of 
German  manufacturing  and  mining  industries  for 
practically  two  decades  depended  upon  the  growth 
Industrial  Ger-  ^f  long-distance  traffic,  and  upon  the 
7?iany  dependent  traffic  in  bulky  articles  which  can 
on  the  Waterways   ^^^^  ^^j^  j^^  transportation  charges, 

the  State  railways  aided  comparatively  little.  In- 
deed, so  far  as  the  development  of  industrial  Germany 
depends  upon  long-distance  traffic  in  compara- 
tively low-value,  bulky  articles,  or  upon  traffic  in 
articles  of  any  kind  that  must  be  sold  on  a  narrow 
margin  of  profit  in  the  international  market,  her 
salvation  was,  and  still  is,  the  waterways.  The  truth 
of  this  generalization  is  not  brought  in  question  by 
the  fact  that,  in  respect  to  export  sugar  in  1901,  the 
charge  on  the  railways  was  reduced  from  1.557  cents 

*  E.  Heubach :  Die  Verkehrsentivickehing  auf  den  Wasserstrassen 
und  Eisenbahnen  des  Elbe-Odergebieies  ;  and  annual  issues  of  Archiv  fuer 
Eisenbahnwesen,  or  Die  Verwaltung  der  Oeffentlichen  Arbeiten  in  Preus- 
sen,  iSgo  bis  igoo. 


62  RAILWAY   RATES 

per  ton-mile  to  0.900  cent  for  the  first  62.5  miles  of 
the  haul,  and  0.711  cent  for  that  part  of  the  haul 
in  excess  of  62.5  miles*  Even  that  reduction  does 
not  meet  the  water  rates  on  sugar,  which  vary  from 
0.280  cent  to  0.657  cent.  The  6,700,000,000  ton- 
miles  of  traffic  carried  by  the  waterways  of  Ger- 
many in  1899,  at  an  average  charge  of  0.346  cent 
per  ton-mile,  paid  275,000,000  marks  less  than  it 
would  have  paid  had  it  been  carried  by  the  railways 
at  the  average  price  received  from  the  "exception- 
rate"  traffic.  That  saving  of  275,000,000  marks  is 
one-third  of  the  total  receipts  of  the  railways  from 
freight  traffic.  But  it  would  be  a  palpable  blunder 
to  measure  in  these  terms  the  real  service  rendered 
by  the  waterways  ;  for  the  important  thing  respect- 
ing the  water-borne  traffic  is  that  this  traffic  never 
could  have  come  into  existence  had  it  been  obliged 
to  pay  0.893  cent  per  ton-mile  or  more.  This 
in  turn  means,  without  exaggeration,  that  were  it  not 
for  the  waterways  modern  Germany  could  not  have 
come  into  existence  —  unless,  indeed,  the  Railway 
Department  had  long  since  abandoned  entirely  its 
effort  to  adhere  to  an  inflexible  scheme  of  rates,  and 
had  gone  over  without  reserve  to  the  practice  of 
charging  what  the  traffic  will  bear. 

Ever  since  the  nationalization  of  the  railways  the 
river-craft  have  constantly  cut  under  the  inflexible 

♦  Zeitschrift  fiur  Binnenschiffahrt,  1 90 1,  Hefte  2,  3  and  5. 


LOCAL    AND    PERSONAL    DISCRIMINATION        53 

railway  rates  to  such  an  extent  that  the  back-handed 
discriminations  of  the  German  transportation  system 
Discrimination  as  a  whole  in  favor  of  cities  and 
against  Points  not  districts  with  watcrways,  as  against 
on  Waterways  ^j^^gg  without  them,  have  equalled, 
and  even  in  many  cases  exceeded,  any  positive 
local  discrimination  ever  made  by  the  private  rail- 
ways. Looking  at  the  other  side  of  the  matter,  one 
will  search  in  vain  in  the  history  of  private  railways 
in  Germany  (or  in  the  United  States)  for  an  in- 
stance of  long-continued  adverse  discrimination, 
handicapping  important  traffic  or  traffic  which 
could  have  been  made  important,  that  will  begin  to 
equal  the  discrimination  made,  for  example,  against 
that  part  of  the  German  beet-sugar  crop  which  is  sent 
to  market  over  the  State-owned  railways  of  Prussia. 
In  the  years  1880  to  1901,  when  the  railway  charges 
on  sugar  were  from  three  to  four  times  as  high  as 
the  waterway  charges,  vast  areas  of  Germany  must 
have  been  heavily  handicapped  in  the  production  of 
beet  sugar.  Again,  in  respect  to  grain,  it  is  well 
known  that  like  differences  in  transportation  charges, 
which  still  exist,  have  made  farming  lands  that  have 
access  to  railways  only  less  valuable  than  those  that 
have  access  to  waterways.*  On  the  other  hand,  it 
is  clear  that  the  cheap  transportation  upon  the  Elbe 
has  had  a  large  share  in  the  extraordinary  progress 

*  Von  der  Goltz :    Vorlesungen  ueber  Agrarwesen  und  Agrarpolitik, 
p.  244. 


54  RAILWAY  RATES 

made  by  the  Province  of  Saxony  and  the  Duchies  of 
Anhalt  and  Brunswick,  not  only  in  the  manufacture 
of  beet  sugar,  but  also  in  the  distillation  of  spirits 
from  grain  and  potatoes,  the  manufacture  of  oil-seed 
cake  and  the  manufacture  of  artificial  manures  from 
calcium  salts.* 

The  failure  of  the  railways  to  meet  the  rates  made 
by  the  river-craft  results  in  still  another  particular 
form  of  local  discrimination,  and  that  is  in  respect 
to  trade  proper,  as  contrasted  with  manufactures  and 
farming.  Bremen  is  as  near  the  centre  of  the  beet- 
sugar  industry  as  Hamburg,  but  it  has  practically  no 
export  trade  in  sugar.  In  the  two  years  1898  and 
1899  there  were  carried  into  Hamburg  by  way  of 
the  Elbe  1,843,000  tons  of  crude  and  refined  sugar; 
by  way  of  the  railways,  48,000  tons.  In  the  same 
years  there  were  carried  into  Bremen  by  way  of  the 
Weser  (a  much  smaller  river  than  the  Elbe)  45,000 
tons  of  sugar ;  by  way  of  the  railways,  10,000  tons.f 

Down  to  1877  Bremen  had  the  monopoly  of  sup- 
plying Germany  with  petroleum  imported  from  the 
United  States.  In  that  year  the  vessels  upon  the 
Rhine  and  the  Elbe  began  to  carry 

Bremen   loses  the         ,      i  j   i  no     -r.  i      j 

Petroleum  Trade    petroleum,  and  by  1885  Bremen  had 
lost  to  Hamburg  its  trade  in  petro- 
leum with  Austria,   Saxony,  Berlin  and  the  whole 


*  Zeitschrifl  fuer  Binnensckiffahrt,  1901,  supplement  to  Heft  4- 

t  Statistik  des  Deutschen  Reichs,  Neue  Folge,  Baende   125  and  131  ; 

Die  Binnensckiffahrt  im  Jahre  i8gS  und  im  Jahre  i8gg ;  and  Statistik 

der  Gueterbevjegung  auf  Deutschen  Eisenbahnen,  1 899. 


LOCAL    AND    PERSONAL    DISCRIMINATION         55 

region  reached  from  Hamburg  by  way  of  the 
Elbe.*  The  leading  Bremen  importers,  Messrs. 
Riedemann  and  Schuette,  tried  to  save  their  trade 
with  the  territory  lying  along  the  Rhine  by  establish- 
ing a  branch  at  Rotterdam.  The  Prussian  Govern- 
ment, unwilling  to  see  the  city  of  Bremen  lose  trade 
to  a  foreign  city,  thereupon  gave  Messrs.  Riedemann 
and  Schuette  cut  rates  from  Bremen  to  the  territory 
along  the  Rhine  and  to  southern  Germany.  This 
importing  house  had  already  initiated  the  practice 
of  carrying  oil  from  America  in  tank- vessels ;  and  by 
means  of  the  economies  thus  effected,  together  with 
the  special  rates  given  by  the  railway  on  oil  shipped 
in  tank-cars,  it  was  enabled  to  retain  a  fair  hold  upon 
the  Rhine  trade.  Indeed,  by  the  use  of  tank-cars, 
Messrs.  Riedemann  and  Schuette  even  regained 
some  of  the  trade  with  the  Elbe  territory.  In  1890, 
however,  the  German  representative  of  the  Standard 
Oil  Company  put  a  fleet  of  600-ton  tank-vessels 
upon  the  Rhine,  Elbe  and  Oder,  and  took  the 
traffic   in   petroleum   away   from   the   railways  en- 

*  R.  Schneider :  Der  Petroleumhandel. 

Petroleum  shipped  by  Rail  from  Bremen  to  :  — 


1877 


1885 


Austria 
Saxony 


Tons 
45.420 
I  ^,000 


Tons 
3429 

957 


56 


RAILWAY   RATES 


tirely.*  To-day  that  part  of  Germany  lying  along 
the  Elbe  and  the  Oder  is  supplied  with  petroleum 
by  water  from  Hamburg;  and  that  part  along  the 
Rhine  is  supplied  from  the  Rhine  ports  lying  between 
Rotterdam  and  Mannheim,  the  latter  point  being 
the  head  of  navigation  for  sizable  vessels.  All  along 
the  waterways  of  Germany  are  maintained  supply 
points,  from  which  oil  is  distributed  to  the  cities  and 
districts  that  have  railways  only.  Under  this  prac- 
tice, the  Weser  not  being  an  effective  waterway, 
Bremen  has  been  reduced  to  a  mere  local  market 
for  petroleum. f 

Similar  discriminations  exist  against  Bremen  in 
the  general  trade  with  Austria-Hungary,  as  well 
as  in  the  import  trade  in  petroleum.     In  1900,  for 


*  R.  Schneider:  Der  Petroleumhandel.     In 
carriage  of  lOO  kilogrammes  of  petroleum  were  : 

1895  ^^  charges  for  the 

By  Rail 

By  River 

Hamburg  to  Magdeburg 

Hamburg  to  Dresden 

Hamburg  to  Berlin 

Marks 

1.63 

2.84 
1.79 

Marks 
0.40 
0.68 
0.38 

t  Eisenbahntarife  unci  Wasserfrachten  ;  and  Die  Binnenschiffahrt  im 
Jahre,  i8gg. 

Petroleum  imported  into: — 

Bremen  . 
Hamburg 
Mannheim 


Tons 

86,000 
269,000 
1 24,000 


LOCAL    AND    PERSONAL    DISCRIMINATION         57 

example,  the  traffic  exchanged  by  rail  between 
Bremen  and  Austria-Hungary  was  only  64,000  tons. 
In  that  same  year  the  traffic  exchanged  by  way  of 
the  Elbe  between  Hamburg  and  Austria-Hungary 
was  1,036,000  tons.  Cheap  water  transportation 
enabled  Hamburg  to  make  larger  and  more  widely 
ramified  trade  connections  with  Austria-Hungary 
than  Bremen  was  able  to  make.  Therefore,  one 
is  not  surprised  to  learn  that  even  the  freight  ex- 
changed by  rail  between  Hamburg  and  Austria- 
Hungary  was  nearly  three  times  as  large  as  that 
exchanged  by  rail  between  Bremen  and  Austria- 
Hungary.*  A  further  indication  of  the  extent  to 
which  Bremen  is  handicapped  by  the  absence  of  an 
efficient  waterway  to  connect  it  with  the  interior  of 
Germany  is  found  in  the  fact  that  Bremen  ships,  in 
vessels,  by  way  of  Hamburg,  Emden  and  other  Ger- 
man ports,  18  percent  of  the  food-stuffs,  21  per  cent 
of  the  raw  materials  and  22  per  cent  of  the  manu- 
factured articles  which  it  sells  into  the  interior  of 
Germany.f 

The  three  or  four  fold  greater  charges  for  trans- 
Mannheim  be-  portation  by  rail  than  for  transporta- 
comes  a  Great  tion  by  Water  has  also  had  the  effect 
Trade  Centre  ^^  concentrating  along  the  waterways 
the  business  of  buying  and  selling  grain,  as  well  as 


*  Statistik  der  Gueterbewegung,  etc.;   and  Tabdlarische  Uebersicht  des 
Hamburgischen  Handels,  etc. 

t  Jahrbuch  fuer  Bremische  Statistik,  1900. 


58 


RAILWAY   RATES 


the  manufacture  of  flour.*  It  has  made  Mann- 
heim the  most  important  wheat  market  of  con- 
tinental Europe.  In  this  trade  Mannheim  now 
enjoys  wholly  exceptional  advantages,  for  she  has 
virtually  become  a  salt-water  port.  A  large  part  of 
the  freight  imported  by  way  of  Rotterdam  is  trans- 
ferred from  the  ocean-going  vessels  directly  to  the 
Rhine  vessels,  and  pays  neither  commission  charges 
nor  warehouse  charges  in  Rotterdam. f 

In  each  of  the  three  years,  1898  to  1900,  Mann- 
heim took  from  the  Ruhr  district  by  way  of  the  Rhine 


*  p.  Mohr :  Die  Entwickelung  des  Grossbetriebes  in  der  Getreide 
Muellerei  Deutschlands ;  and  Zeiiung  des  Vereins  Deutscher  Eisenhahn- 
verwaltungen,  July  30,  1898.  Verhaitdlungen  des  Landeseisenbahnrats, 
1899,  No.  15. 


Grain  received  at  the 

SO-CALLED  Giant  Mills 

Bv  Rail 

By  Water 

Bv  Rail  AND 
Water 

By  Wagon 

1895-97  

40.4% 

32.1% 

H% 

13.5% 

Flour  and  Mill  Products  shipped  from  Mills 


1895-97 


59.8%  1 2.8  0/0  1.9%  25.5% 


Flour  and  Mill  Products  shipped  in  1897 


Per  Cent 


Not  to  exceed  62.5  miles 
Between  62.5  and  125  miles 
Between  125  and  187.5  n^iles 
Between  187.5  ^""^  250  miles 
Upward  of  250  miles 


63-3 
24.0 

6.5 
30 
3-2 


t  Landgraf :  Die  Verkehrspolitische  Mission  Mannheims. 


LOCAL    AND    PERSONAL    DISCRIMINATION 


59 


an  average  of  2,400,000  tons  of  coal ;  *  by  way  of  the 
railways  it  took  less  than  25,000  tons.  In  the  same 
period  it  obtained  less  than  100,000  tons  a  year  from 
the  Saar  district,  though  the  latter  is  less  than  half 
as  far  from  Mannheim  as  is  the  Ruhr  district. f  The 
report  of  the  Mannheim  Chamber  of  Commerce  for 
1895  explained  the  anomaly:  the  State  railways  from 
the  Saar  district  maintained  a  hard  and  fast  rate  on 
coal,  whereas  the  Rhine  vessels  from  the  Ruhr  dis- 
trict adjusted  their  rates  to  the  exigencies  of  the 
market.  This  made  the  margin  of  profit  so  much 
larger  on  the  Ruhr  coal  that  it  was  not  worth  while 
for  the  Mannheim  merchants  to  handle  Saar  coal.J 
In  1900  the  total  receipts  of  freight  at  Mannheim 
(mainly  from  points  below,  up  the  Rhine)  were 
5,953,000  tons  by  water  and  1,460,000  tons  by  rail.§ 

*  Die  Binnen-Schiffahrt,  current  issues. 

f  Staiistik  der  Gzceterbewegung,  etc. 

X  E.  Heubach  in  Eisenbahntarife  und  Wasserfrachten  ;  and  Zeiiung 
des  Vereins  Deutscker  Eisenbahnverzualtungen,  October  21,  1899;  also 
Sympher  :   Die  Wirthschaftliche  Bedeutung,  etc. 

§  J.  Landgraf :  Der  Rhein  in  seiner  technischen  ttnd  wirthschaftlicken 
besonders  audi  verkehrstarifarischen  Bedeutung ;  Statistik  der  Gueter- 
bewegung  auf  Deutschen  Eisenbaknen,  etc.,  1900;  ^nd  Jahres-Berickt  der 
Central-Commission  fuer  die  Rhein- Schiffahrt,  1900. 


1884 
1890 
19CXD 


Into  Mannheim 


By  River  By  Rail 


Tons 
1,454,000 
2,562,000 
5,953,000 


Tons 
662,000 
910,000 
1,460,000 


Out  of  Mannheim 


By  River  By  Rail 


Tons 
3 1 2,000 
561,000 
990,000 


Tons 
1,397,000 
2,263,000 
3,812,000 


In  1900  the  traffic  into  and  out  of  St.  Louis,  which  is  at  the  head  of 
navigation  on  the  Mississippi,  so  far  as  sizable  vessels  are  concerned,  was 
24,600,000  tons  by  rail  and  700,000  tons  by  river. 


60  RAILWAY   RATES 

In  the  same  year  there  were  shipped  (to  points  farther 
in  the  interior)  by  water,  990,000  tons;  by  rail, 
3,812,000  tons.  Mannheim,  by  reason  of  its  pecul- 
iar situation,  is,  of  course,  an  extreme  example  of 
local  discrimination  due  to  the  failure  of  the  railways 
to  meet  the  transportation  charges  of  the  waterways. 
But  that  does  not  make  the  foregoing  figures  any  less 
instructive,  as  illustrations  of  local  discriminations 
in  respect  to  trade  centres  resulting  from  this  cause. 
In  the  course  of  the  proceedings  of  the  commit- 
tee of  the  Diet  appointed  to  report  on  the  Gov- 
ernment canal  bill  of  1901,  Mr.  Sympher,  as  the 
^  .^       representative    of    the    Government, 

Government  Con-        ^  ' 

trol  concentrates  spoke  of  the  "well-known"  fact  that 
Trade  and  such    manufacturing    enterprises   as 

opu  a  ton  were  not  established  in  the  immediate 

vicinity  of  coal  or  iron  mines  were  forced  to  seek 
location  upon  the  waterways.  The  waterways  en- 
abled the  manufacturers  to  obtain  their  raw  materials 
at  prices  not  materially  higher  than  those  current  in 
the  coal  and  iron  districts.  The  building  of  canals, 
Mr.  Sympher  argued,  would  decentralize  industry  and 
would  check  the  further  congestion  of  population  in 
the  present  industrial  centres.*    In  1879  the  Govern- 


*  Zeitschrift  fiier  Binnettschiffahrt,  1 90 1,  Heft  10.  Compare  also : 
Centralblatt  der  Bauverwaltung,  May  18,  1901.  Professor  Eheberg,  of 
Erlangen,  in  Bavaria,  stated  that  the  execution  of  the  Prussian  canal 
schemes  would  prove  disadvantageous  to  Bavaria.  The  industries  that 
would  locate  along  the  proposed  canals  would  have  such  advantages  that 
the  competing  Bavarian  industries  would  have  to  leave  Bavaria  and  seek 
location  upon  the  canals. 


LOCAL    AND    PERSONAL   DISCRIMINATION        61 

ment  of  Prussia  had  asked  permission  of  the  Diet 
to  buy  the  railways  in  order  that,  among  other  things, 
it  might  decentralize  industry  and  check  the  growth 
of  large  cities;  now,  in  1901,  it  asked  permission  to 
parallel  the  main  railway  lines  by  canals  in  order  to 
accomplish  the  same  object. 

The  Prussian  Government  has  been  fairly  suc- 
cessful in  limiting  direct  personal  discrimination 
upon  the  railways,  as  contrasted  with  local  discrimi- 
nation. Indeed,  in  the  American  sense  of  the  term 
there  is  no  personal  discrimination  —  that  is,  dis- 
crimination effected  by  means  of  secret  rates;  but 
there  is  considerable  difference  between  the  charges 
on  small  shipments,  on  5-ton  shipments  and  on 
lo-ton  or  car-load  lots.*  These  differences  are  of 
such  importance  that  small  shippers  frequently  give 
their  freight  to  "forwarding  agents,"  with  the  under- 
standing that  the  latter  may  delay  shipment  until 
they  shall  have  collected  a  5-ton  or  lo-ton  lot. 
The  forwarding  agents  share  with  the  shippers  the 
difference  between  the  parcels  rate  and  the  car-load 
rate,  retaining  for  themselves  one-half  to  two-thirds 
of  the  difference.  Down  to  1897  they  acted  as  mid- 
dlemen for  about  20  per  cent  of  the  parcel  shipments ; 
but  since  then  the  percentage  has  fallen  to  11  or  12, 
the  railway  rates  on  parcels  having  been  lowered. f 

*  Archiv  ftier  Eisenbaknen,  1 900,  Heft  2.  Compare  also :  The  Rail- 
road Gazette,  February  15,  1899. 

t  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  June  4  and 
15  and  July  2,  6  and  27,  1898 ;   and  Statistik  der  Gueterbewegung,  etc. 


62  RAILWAY   RATES 

In  1899  not  less  than  90.7  per  cent  of  the  freight 
carried  by  the  railways  was  delivered  to  them  in 
lo-ton,  or  car-load  lots.  Car-load  traffic  is  obviously 
Discrimi7iation  in  handled  much  more  economically 
Favor  of  Large  than  Icss  than  car-load  traffic,  and 
Shippers  ^j^yg   ^j^g   practice   of    granting    the 

favor  of  a  lower  rate  per  car-load  to  the  whole- 
sale shipper  is  of  great  value  to  the  Railway  De- 
partment. As  the  carrying  capacity  of  the  cars  is 
increased,  the  weight  of  the  car-load  consignment  will 
have  to  be  raised  proportionately,  or  the  capacity 
of  the  enlarged  car  will  not  be  fully  utilized.  The 
failure  to  raise  the  minimum  quantity  of  freight 
constituting  a  car-load  lot,  when  the  15-ton  cars 
were  introduced,  was  mainly  responsible  for  the 
fact  that  the  proportion  of  the  carrying  capacity  of 
cars  utilized  fell  from  49  per  cent  in  1890  to  45.4  per 
cent  in  1899.*  On  the  other  hand,  to  raise  the  car- 
load lot  from  10  tons  (where  it  stands  at  present)  to 
20  or  30,  would  materially  increase  the  discrimina- 
tion between  the  small  shipper  and  the  large  shipper. 
Unwillingness  to  make  so  great  a  discrimination 
is  probably  one  reason  why  the  Government  is  loath 
to  introduce  modern  cars  of  greater  capacity. f 

*  Zeitung  des  Vereins  Diutscher  Eisenbaknverwaltungen,  February  20, 
1901. 

+  The  waterways  have  had  a  distinct  advantage  in  respect  to  flexibility 
in  adjusting  rates  with  regard  to  the  specific  economies  of  the  transpor- 
tation business.  Thus,  in  the  20  years  ending  with  1897,  the  average 
capacity  of  the  vessels  on  the  waterways  was  increased  from  80  to  160  tons, 
and  at  the  same  time  a  considerable  improvement  was  effected  in  the  utili- 
zation of  space  or  carrying  capacity.     This  is  shown  conclusively  by  the 


LOCAL    AND    PERSONAL   DISCRIMINATION        63 

Just  as  the  boldest  innovations  of  the  Railway 
Department,  in  modification  of  the  hard  and  fast 
scheme  of  rates  in  general,  are  made,  as  we  have 
seen,  in  cases  where  pressure  from  the  outside  world 
compels  action,  so  in  this  matter  of  discrimination 
between  the  large  and  small  shippers.  The  Railway 
Department  has  gone  far  in  such  discrimination  in 
a  number  of  instances  of  extreme  competition  with 
English  and  French  articles  of  commerce.  In  the 
general  coal  traffic,  for  example,  there  is  a  tendency 
to  require  a  minimum  consignment  of  45  tons.  In 
the  particular  coal  traffic  to  the  foreign  ports  in  Bel- 
gium and  Holland  and  to  the  domestic  ports  (and 
considerable  industrial  centres)  of  Bremen  and  Ham- 
burg, which  are  common  markets  for  English,  French 
and  German  coal,  progressive  rebates  are  given  for 
the  shipment  of  a  specified  number  of  train-loads  per 
week,  each  train-load  to  consist  of  from  200  to  300 
tons.*     In  other  cases  in  the  coal  trade,  the  special 

fact  that,  while  the  aggregate  capacity  of  the  river  and  canal  fleet  was 
increased,  through  more  boats  and  larger  boats,  by  143  per  cent,  the  total 
traffic  carried  was  increased  by  159  per  cent.  Zeitschrift  fuer  Binttett- 
schiffahrt,  1900,  Heft  8. 

*  Verhandlungen  des  Landeseisenbahnrats,  1900,  No.  4. 


Coal  shipped  from  Ruhr  District  to  Rotterdam  in  1900 

Tons 

Rebate  per  Ton 
IN  Pfennige 

In  car-load  lots 

In  five  car-load  lots 

In  train-load  lots 

406,000 

350,000 

1,875,000 

nil 

19 
40 

In  the  traffic  to  Belgian  ports  the  rebates   for   train-load  shipments 
average  15  cents  per  ton. 


64  RAILWAY  RATES 

rates  are  given  in  consideration  of  the  shipment  of  a 
specified  quantity  per  year,  as  in  the  trafific  from 
Silesia  to  Dresden  and  to  the  Baltic  seacoast  region  * 
In  still  other  cases,  special  rates  are  given  on  condi- 
tion of  a  certain  increase  of  the  traffic. f  In  all  these 
cases  the  object  of  the  Government  is  to  enable  the 
German  coal  to  meet  the  competition  of  foreign  coal. 
In  connection  with  the  matter  of  personal  dis- 
crimination, there  is  still  another  feature  of  the  situa- 
tion to  be  brought  out.  The  Prussian  scheme  of 
Water  Traffic  railway  charges,  as  we  have  seen, 
means  Personal  operates  to  give  a  retroactive  local 
Discrimination  discrimination  in  favor  of  those  parts 
of  the  country  which  have  waterways.  The  same 
cause  has  the  further  effect  of  bringing  about  new 
forms  of  personal  discrimination,  superadded  to  the 
local  discrimination.  Not  only  do  common  carriers 
on  the  rivers  and  canals  increase  the  size  of  their 
vessels  and  then,  in  order  to  run  them  full,  favor  large 
shippers  more  and  more;  but  also  in  the  regions 
served  by  waterways  the  larger  producers  of  coal, 
iron,  steel,  sugar  and  other  low-priced  and  bulky 
commodities  frequently  own  and  operate  their  freight 
vessels  —  which  is,   of  course,   a  practice   beyond 

*  Verhandlitngen  des  Landeseisenbahnrais,  1900,  Xo.  4.  On  condition 
that  the  aggregate  annual  shipments  of  coal  from  the  Ruhr  district  to 
Paris  shall  be  not  less  than  75,000  tons,  the  German  State  railways  join  the 
Belgian  State  railways  and  the  French  Railway  du  Nord  in  making  a  rebate 
of  14  cents  per  ton. 

t  British  Blue  Book,  Commercial  No.  2  (1898).  Bounties  to  Ships 
and  Preferential  Railway  Rates, 


LOCAL    AND    PERSONAL   DISCRIMINATION         65 

the  means  of  small  producers.  For  example,  Die 
Elbinger  Dampfschijjrhederei  F.  Schichau,  which 
employs  between  5000  and  6000  men,  keeps  in  com- 
mission two  steamers  which  carry  Russian  lumber 
from  Elbing  on  the  Baltic  to  Cologne  on  the 
Rhine,  and  take  back  to  Elbing  iron  and  steel  for 
use  in  its  works.*  Again,  Die  Gesellschaft  fuer 
Brauerei,  Spiritus  und  Presshejenfabrikation,  at 
Karlsruhe  in  Baden,  sends  its  own  tank  steamers 
and  tank  barges  to  the  Baltic  seaports  for  the  raw 
spirits  which  it  rectifies  at  Karlsruhe. f 

One  of  the  leading  objects  of  Prussia's  national- 
ization of  the  railways  was,  as  stated  in  the  last 
chapter,  the  desire  to  abolish  or  minimize  railway 
discriminations.  This  should  result,  according  to 
the  Diet's  understanding  of  cause  and  effect,  in 
decentralizing  trade  and  industry,  as  well  as  in 
putting  large  and  small  shippers  on  a  footing  of 
equality.  To  restate  the  matter,  there  was  the  im- 
mediate object  of  doing  away  with  certain  railway 
rate-making  practices;  and  there  was  the  ultimate 
object  of  attaining  thereby  certain  social-economical 
results.  The  evidence  now  before  us  shows  that 
Prussia  has  succeeded  on  the  whole  in  the  first,  but 
has  failed  completely  in  the  second. 

*  It  was  this  firm  that  exhibited  the  steam-engine  which  took  the  first 
prize  at  the  World's  Fair  at  Chicago  and  which  is  now  in  use  in  the 
largest  milling  establishment  at  Minneapolis. 

t  Zeitschrift  fuer  Binnenschiffahrt,  1901,  Heft  8  ;  and  Zeitung  des 
Vereins  Deutscher  Eisenbahnverwaltungen,  December  2,  1899  ;  01  Jahres- 
undVerwaltungsbericht  der  Handelskam?ner  fuer  Duisburg,  1900. 


66  RAILWAY  RATES 

The  making  of  railway  rates  is  now  directly  and 
positively  under  the  control  of  the  Prussian  Gov- 
ernment, and  therefore  personal  discrimination  has 
been  done  away  with,  except  in  those  forms  where  it 
is  compelled  by  technical  or  other  special  conditions. 
Even  more  completely  has  local  discrimination  been 
done  away  with,  so  far  as  the  railways  themselves  are 
concerned.  A  decaying  city  which  the  State  railways 
serve  —  a  city  without  natural  or  artificial  water- 
ways —  has  the  consolation  of  knowing  that  it  is 
no  worse  off  than  other  cities  similarly  situated. 
But  the  making  of  the  transportation  situation  as  a 
whole  in  Prussia  is  not  directly  and  positively  under 
the  control  of  the  Government  —  or,  at  any  rate,  not 
so  long  as  the  waterways  are  not  crippled  by  tolls, 
and  the  present  scheme  of  high  and  inflexible  rail- 
way charges  is  maintained.  Up  to  the  present  time, 
as  we  have  seen,  there  is  not  only  failure  to  produce 
decentralization,  but  the  very  opposite  condition  has 
actually  been  intensified;  and  in  addition,  along 
with  the  growth  of  that  traffic  which  is  not  managed 
by  the  Prussian  Government,  there  goes  a  great 
increase  of  personal  discrimination  as  well.  The 
traffic  on  the  waterways,  it  may  be  further  observed, 
is  precisely  the  traffic  in  which  personal  discrimina- 
tion is  most  telling  in  effect ;  for  it  is  the  traffic  arising 
from  commercial  transactions  based  on  a  narrow 
margin  of  profit.  Upon  this  water-borne  traffic  the 
advantage  of  the  large  shipper  over  the  small  shipper 


LOCAL   AND    PERSONAL   DISCRIMINATION         67 

has  been  steadily  increasing  for  20  years,  and  is 
to-day  greater  than  it  ever  was  upon  the  German 
railways  before  they  were  nationalized.  It  will  in- 
crease still  further,  as  the  canals  are  extended  in 
length  and  deepened,  and  the  rivers  improved.  The 
average  capacity  of  the  vessels  on  the  rivers  and 
canals  is  now  only  20  tons  less  than  the  average 
train-load,  and  it  is  a  matter  of  common  remark  that 
it  is  becoming  constantly  more  difficult  for  the  small 
producer  or  dealer  to  make  his  shipments  by  water 
sufficiently  large  to  secure  for  himself  the  lowest 
rates.* 

But,  turning  again  to  local  discrimination,  we  find 
that,  even  directly  and  in  connection  with  the  rail 
traffic  itself,  the  uniform,  levelling  scheme  of  govern- 
ment charges  has  resulted  in  furthering  concentra- 
tion of  business  and  population,  instead  of  promoting 
dispersion.  As  every  practical  railway  man  knows, 
rival  commercial  centres  are  dissimilar:  they  have 
dissimilar  facilities  for  transacting  business,  and  dis- 
similar powers  for  drawing  and  holding  it ;  and  there- 
fore to  treat  them  all  alike  in  rates  would  mean  the 
absorption  by  one  of  all  the  trade  competed  for. 
Thus,  in  the  United  States,  Boston,  Philadelphia, 
Baltimore  and  Newport  News,  in  competition  with 
the  great  trade  magnet,  New  York,  for  the  export 
grain  trade,  have  been  given  a  chance  through  the 

*  Archiv  fuer  Eiseiibahnen,  1901,  Heft  2;   and  Ulrich:   Staatseisen- 
bahnen,  Staatswasserstrassen  und  Deutsche  Wirthschaftspoliiik. 


68  RAILWAY  RATES 

well-known  trunk  line  "differentials."  In  Germany, 
on  the  contrary,  Stettin  and  Bremen  have  no  chance 
as  against  Hamburg,  either,  for  example,  in  the  ex- 
port trade  in  sugar  or  the  import  trade  in  petroleum. 
Hamburg  grows  apace,  outstripping  all  her  rivals  — 
the  very  thing  the  Prussian  Government,  for  various 
weighty  reasons,  desires  to  prevent.  The  Govern- 
ment may  not  grant  differentials  on  its  own  railways 
to  remedy  this  undesirable  state  of  things  (as  private 
railways  might  and  would),  or  at  least  it  may  not 
grant  them  readily.  The  only  thing  it  may  do  is 
to  try  to  provide  with  canals  the  cities  which  are 
being  left  behind;  though  this,  in  turn,  as  we  shall 
see  in  a  subsequent  chapter,  leads  to  fresh  local  in- 
equalities and  charges  of  favoritism.  "Believe  me," 
said  Burke,  "those  who  attempt  to  level  never  equal- 
ize. .  .  .  The  levellers  only  change  and  pervert  the 
natural  order  of  things." 


CHAPTER  III 

RAILWAY  REVENUE  AND  TECHNICAL  EFFICIENCY 

When  the  Prussian  Diet  authorized  the  Govern- 
ment, in  1878-79,  to  begin  the  purchase  of  the 
private  railways  of  Prussia,  with  the  design  of  creat- 
ing a  complete  State  system,  it  was  with  the  under- 
standing that  any  surpluses  earned  by  the  Railway 
Department  should  not  be  used  for  defraying  the 
current  expenses  of  the  State.  Such  surpluses  were 
to  be  paid  into  a  sinking  fund,  which  was  to  serve  the 
double  purpose  of  a  fund  for  the  ultimate  payment 
of  the  railway  debt  and  of  a  reserve  fund  to  be  drawn 
upon  in  any  year  in  which  the  railways  might  fail 
to  earn  the  interest  on  the  securities  outstanding 
against  them.  During  the  course  of  the  debate  on 
the  various  bills  submitted  to  the  Diet,  in  that  and 
subsequent  years,  the  Government  repeatedly  as- 
sured the  Diet  that,  beyond  interest  and  reasonable 
sinking-fund  payments,  the  railways  would  not  be 
made  a  source  of  income;  that  the  State  would 
always  manage  the  railways  primarily  in  the  inter- 
est of  commerce  and  industry,  and  not  in  the  in- 
terest of  the  budget.    The  forceful  expression  of  a 

69 


70  RAILWAY  RATES 

Minister  of  the  Crown  was  that  the  State  railways 
were  not  to  be  managed  like  a  brewery.* 

These  assurances  were  necessary,  for  the  Diet  was 
opposed  to  the  Government  having  an  independent 
source  of  revenue  in  the  form  of  net  railway  earn- 
ings ;  and  it  was  also  unwilling  that  the  Government 
should  run  the  risk  of  disorganizing  the  public 
finances,  by  treating  as  current  income  an  item  sub- 
ject to  such  sudden  and  violent  fluctuations  as  rail- 
way profits. f  Every  one  still  had  the  liveliest 
recollection  of  the  sudden  drop  in  the  net  earnings 
of  the  railways  of  Germany  from  an  average  of  6.44 
per  cent  during  the  prosperous  years,  1868-72,  to 
4.47  per  cent  in  the  years  of  depression,  1875-79. J 
To  make  the  assurances  good,  accordingly,  the 
Government  proposed,  in  December,  1880,  the  es- 
tablishment of  a  sinking  fund  and  a  reserve  fund; 
but,  as  the  national  budget  proposals  showed  an  esti- 
mated deficit  of  30,000,000  marks  for  the  fiscal  year 
1881-82,  the  Diet  itself  urged  that  it  was  inexpe- 
dient to  begin  upon  these  railway  surplus  funds  at 
that  time.     In  1882,  under  substantially  similar  con- 

*  This  ideal  was  held  up  to  still  existing  private  railways.  In  1882 
the  Minister  of  Public  Works,  Herr  von  Maybach,  in  putting  pressure 
upon  the  managers  of  certain  private  railways  in  Silesia,  in  order  to  obtain 
for  the  general  public  certain  reductions  in  rates,  reminded  these  managers 
that,  in  return  for  the  charters  granted,  the  railway  companies  had  assumed 
duties  to  the  public  which  had  fully  as  much  weight  as  had  the  claims  of 
the  stockholders.  Joseph  Ritter  von  Renauld :  Der  Bergbau  und  die 
Huettenindustrie  von  Oberschlesien,  1884-97,  P-  ^S-  Compare  also:  Z«- 
iung  des  Vereins  Deutscher  Eisenbafuiverwaliungen,  August  24,  1 898. 

t  Finanz-Archiv,  1885  :   Das  Eisenbahngarantiegesetz. 

X  Annalen  des  Deutschen  Reichs,  1883. 


RAILWAY    REVENUE    AND   EFFICIENCY  71 

ditions  of  deficit  in  the  national  accounts,  the  Diet 
finally  contented  itself  with  enacting  that  the  railway 
surpluses  should  be  used  in  paying  off  the  railway 
debt  at  the  minimum  annual  rate  of  three-fourths 
of  one  per  cent.  The  restrictive  force  of  this  enact- 
ment was  neutralized,  however,  by  the  further  pro- 
vision that  any  part  of  the  railway  surpluses  which 
should  be  used  to  defray  any  public  expenditures  that 
otherwise  would  have  to  be  met  by  loans,  should  be 
regarded  as  having  been  virtually  applied  to  the 
liquidation  of  the  railway  debt.  That  is,  this  pro- 
viso of  the  enactment  made  it  legally  possible  for  the 
Government  to  apply  railway  surpluses  to  current 
expenses  of  the  State,  on  the  plea  that  the  alterna- 
tive to  such  use  would  be  the  issue  of  loans  to  cover 
deficiencies  in  the  current  income.  Thus  was  the 
door  left  open:  several  things  led  to  crossing  the 
threshold. 

From  i860  to  1873  the  landed  aristocracy  of  Prus- 
sia speculated  recklessly  in  agricultural  lands,  be- 
lieving that  wheat  and  the  other  grains  were  to  have 
permanently  high  prices.     The  great 

Politics  and  Rail-   1        hit  r        '^'        i  i  -       11^.1 

■way  Revenue  landholdmg  families  bought  all  the 
land  they  could,  frequently  paying 
down  only  one-half  to  one-third  of  the  purchase 
price,  letting  the  balance  stand  on  mortgage.  Then 
came  the  crisis  of  1873,  with  the  hard  times  that  fol- 
lowed; and  to  this,  beginning  in  1875,  was  added  a 
series  of  years  of  disastrous  harvests.     By  1878  the 


72  RAILWAY  RATES 

outlook  had  completely  changed,  with  the  conviction 
that  the  wheat  of  the  Mississippi  Valley  was  to  be  a 
permanent  and  formidable  competitor  of  the  wheat 
raised  in  Germany.  Accordingly,  in  1879,  Bismarck 
brought  the  regime  of  free  trade  to  an  end,  by 
carr}'ing  in  the  Imperial  Reichstag  a  measure  im- 
posing on  wheat  a  customs  duty  of  10  marks  per 
ton.  This  step  was  taken  partly  from  the  desire 
to  help  the  landed  aristocracy,  which  had  always 
been  the  institutional  mainstay  of  the  Crown,  and 
partly  from  the  wish  to  strengthen  the  peasant 
farmers,  who  constitute  the  great  bulwark  of  voters 
against  the  rising  tide  of  socialism.  But  in  order 
to  get  the  non-agrarian  vote  of  Prussia  to  support 
the  Imperial  customs  bill  in  the  Reichstag,  it  was 
necessary  to  promise  in  the  Prussian  Diet  certain 
abatements  of  taxes.  In  1881  the  Reichstag  elec- 
tions went  adversely  to  the  Government,  much  po- 
litical capital  having  been  made  during  the  campaign 
from  the  rise  in  the  necessaries  of  life  which  followed 
the  duties  of  1879,  imposed  after  the  series  of  Euro- 
pean crop  failures  of  the  preceding  four  years.  It 
thus  became  necessary,  in  order  to  placate  the  non- 
agrarian  element,  to  go  even  beyond  the  promises 
made  in  1879 ;  and  Bismarck  began  to  cast  about 
for  some  source  of  revenue  that  should  enable  him 
to  make  important  abatements  of  taxes  and  consider- 
able augmentations  of  expenditures.  His  schemes 
for  a  state  monopoly  of  the  distilled  spirits  and  to- 


RAILWAY    REVENUE    AND   EFFICIENCY  73 

bacco  industries  failed;  and,  therefore,  to  meet  the 
deficits  when  the  time  came,  nothing  remained  but 
to  turn  the  Railway  Department  into  a  revenue-rais- 
ing machine.* 

Down  to  the  close  of  the  financial  year  1889-90 
the  proceeds  of  the  direct  and  indirect  taxes,  supple- 
mented by  the  proceeds  of  the  State's  agricultural 
lands,  forests,  coal  mines  and  salt  works,  sufficed 
to  meet  all  the  expenses  of  the  State,  excepting,  of 
course,  the  expenses  on  account  of  the  national  debt 
and  the  railways,  which  were  taken  care  of  by  the 
railway  earnings.  But  in  1890-91  the  Prussian 
budget  showed  the  effect  of  the  extensive  abatements 
of  taxes  and  augmentations  of  expenditure  of  the 
preceding  years ;  and  there  was  no  help  for  it  but  to 
draw  heavily  on  the  railway  surpluses  for  the  cur- 
rent expenses  of  the  State.  The  reductions  in  taxes 
had  been  made  in  connection  with  the  reform  of 
local  taxation  and  the  imposition  of  imperial  taxes, 
especially  in  connection  with  raising  the  protective 
duty  on  wheat  to  30  marks  per  ton  in  1884,  and  to 
50  marks  per  ton  two  years  later.  The  expenditure 
had  been  increased  by  legislation  which  improved 
the  condition  of  the  civil  servants,  and  of  the  widows 
and  children  of  deceased  civil  servants,  as  well  as 
by  legislation  which  entailed  increased  outlays  upon 


*  Freiherr  von  Zedlitz  und  Neukirch :  Drnssig  Jahre  Preussischer 
Finanz-  und  Stetierpolitik.  Freiherr  von  Zedlitz  is  the  parliamentary 
leader  of  the  Free  Conservative  faction  of  the  Conservative  Party. 


74  RAILWAY  RATES 

the  people's  schools,  the  technical  high  schools  and 
the  universities.  In  the  end  the  budget  was  ajBfected 
adversely  to  the  extent  of  150,000,000  marks  a  year; 
and  the  railway  surpluses  for  the  whole  period  clos- 
ing with  1900-01  were  drawn  upon  at  the  average 
annual  rate  of  89,000,000.  At  the  present  moment 
they  are  drawn  upon  at  the  rate  of  180,000,000  a  year, 
and  there  is  no  immediate  prospect  of  reduction. 
The  direct  taxes  yield  about  160,000,000  marks,  and 
the  indirect  taxes  another  50,000,000.  Were  it  not 
for  the  railway  surpluses,  Prussia  would  need  either 
practically  to  double  its  taxation  or  to  reduce  expen- 
diture by  one-half.* 

Dependence   upon   railway   earnings   being   thus 

firmly  established,  contrary  to  all  the  fair  promises 

made  at  the  beginning,  reductions  of  rates  have  to 

wait  upon  the  convenience  of  those  in 

The  Goverfitnent 

versus  the  People  charge  of  the  budget,  notwithstandmg 
the  fact  that  the  Government  may 
itself  be  fully  convinced  of  the  advisability  of  such 
reductions  in  the  interest  of  the  public.  For  ex- 
ample, in  May,  1891,  when  the  National  Railway 
Council,  acting  upon  resolutions  of  all  the  District 
Councils  and  supported  by  the  Minister  of  Public 
Works,  reported  that  public  interest  demanded  that 
the  rates  on  iron  ores,  coal  and  coke  be  reduced,  the 

*  Annalen  des  Deutschen  Reichs,  1898  and  1900 ;  Extracts  from  the 
Reports  of  the  Minister  of  Finance  to  the  King  of  Prussia;  Finanz-Archiv, 
1897  and  1900,  R.  von  Kaufmann  ;  and  Die  Verwaltung  der  Oeffentlichen 
Arbeiten  in  Preussen,  i8go  bis  igoo. 


RAILWAY    REVENUE    AND    EFFICIENCY  75 

Government  replied  that  the  condition  of  the  na- 
tional finances  forbade  the  granting  of  any  reduc- 
tions in  rates  that  might  cause  a  considerable 
temporary  loss  of  revenue.  The  surplus  in  the  na- 
tional account  had  fallen  from  102,000,000  in  1890 
to  13,000,000  in  1 89 1,  and  the  year  1892  was  expected 
to  show  a  deficit  of  some  40,000,000.  In  vain  the 
coal  and  iron  interests  ma:de  answer  that  the  freight 
rates  in  question  had  been  stationary  since  1881 ; 
that  in  Germany  the  transportation  charges  consti- 
tuted from  25  to  30  per  cent  of  the  cost  of  making 
pig  iron,  whereas  in  England  they  constituted  only 
10  per  cent.  In  1893  the  Government  admitted  the 
necessity  of  the  reductions  asked  for  in  1891,  but  it 
granted  a  reduction  on  iron  ores  only,  postponing 
action  on  the  coal  and  coke  rates  until  the  national 
finances  should  again  be  in  a  satisfactory  condition.* 
The  years  1893  and  1894  ended  with  deficits  of 
25,000,000  and  30,000,000  respectively,  and  1896 
closed  with  a  surplus  of  60,000,000.  Then,  in  1897, 
the  freight  rates  on  coal  and  coke  and  numerous  other 
articles  were  reduced. f 

From  1 88 1  to  1895  ^^^  ^^^  earnings  of  the  railways 
averaged  5.35  per  cent  annually  on  the  cost  of  the 
railways  to  the  Government,  a  sum  somewhat  in  ex- 
cess of  the  original  cost  to  the  companies  which  had 


*  E.  Heubach  in  Eisenbahntarife  und  Wasserfrachten. 
t  Stahl  und  Eisen,  December,   1891  ;    April   15  and  December  15, 
1892;  March  15,  1896;  and  January  15,  1898. 


76  RAILWAY   RATES 

sold  to  the  State.  In  1896  the  net  earnings  rose  to 
6.75  per  cent,  and  in  the  following  four  years  they 
averaged  7.16  per  cent.  They  have  been  sufficient 
since  1880,  not  only  to  pay  the  interest  on  the  entire 
national  debt  (95  per  cent  of  which  is  railway  debt), 
and  to  pay  off  the  debt  itself  at  the  rate  of  about  one- 
half  of  one  per  cent  a  year,  but  also,  as  has  just  been 
shown,  to  contribute  largely  to  the  current  expenses 
of  the  State.* 

To  make  this  favorable  showing,  however,  the 
Government  overreached  itself.  In  the  eighties 
and  the  early  nineties  it  starved  the  maintenance  of 
way  and  of  rolling  stock,  and  down  to  1895  it  erred 
in  charging  to  capital  account  expenditures  that 
should  have  been  charged  to  operating  expenses. f 

In  consequence  of  the  fact  that  immediately  upon 
the  taking  over  of  the  railways  by  the  State,  the  long- 
distance traffic  and  the  traffic  in  bulky  commodities 
of  comparatively  low  value  were  de- 
^hlRaUwlys^'^  fl^^^^^  .SO  largely  to  the  waterways, 
the  Railway  Department  did  not  feel 
the  necessity  of  bringing  the  railways  to  modern 
standards  of  efficiency.  The  result  has  been  that 
the  railways,  since  the  latter  nineties,  have  been 
finding  it  increasingly  difficult  to  handle  the  traffic 


*  O.  Schwarz  and  G.  Strutz :  Der  Staatshaushalt  und  die  Finanzen 
Preussens,  Vol.  I,  Bk.  VII ;  Die  Eisenhahnverwaltung.  The  authors  are 
prominent  officials  in  the  Ministry  of  Finance. 

t  AnnaUn  des  Deutschen  ReichSy  1 898;  vaA  Zeitschrifi  des  Vereins  fuer 
Binntnschiffahrt,  190 1,  Heft  6. 


RAILWAY    REVENUE    AND    EFFICIENCY  77 

that  now  comes  to  them  as  mere  feeders  to  the  water- 
ways. That  traffic  is  now  so  large,  in  places,  that 
it  can  be  handled  only  by  a  modern  railway ;  on  the 
other  hand,  a  modern  railway,  employing  cars  of 
30,  40  and  50  tons'  capacity  and  hauling  freight  in 
train-loads  rising  to  3000  tons- of  paying  freight,  can- 
not live  as  a  mere  feeder  to  the  waterways. 

The  slight  degree  of  efficiency  in  the  conduct  of 
transportation  attained  by  the  Prussian  railways  is 
brought  out  with  force  and  clearness  in  an  article 
by  Mr.  Todt,*  former  Eisenhahndirektions-Praesi- 
dent,  whom  German  railway  managers  and  engineers 
hold  in  high  esteem  and  whom  the  Government 
often  quotes  in  Parliament. f  Mr.  Todt  is  arguing, 
in  this  article,  in  support  of  one  of  the  theses  under- 
lying the  Government's  recent  canal  proposals  — 
namely,  that  the  railways  of  the  Ruhr  district  will 
shortly  be  unable  to  handle  the  traffic  of  that  dis- 
trict, and  that  the  only  way  out  of  the  difficulty  is  to 
build  a  canal.  The  Ruhr  district,  he  points  out,  is 
served  by  five  through  lines,  which  are  equipped  in 
all  with  nine  through  tracks. {     The  traffic  is  grow- 

*  Zeitung  des  Vereins  Deutscher  Eisenbahtiverwaltungen,  November  8, 
1899.      Reprinted  as  No.  i  in  Sammlung  von  Sckriften  zur  Kanalfrage. 

t  Ibid.,  February  9,  1901,  Mr.  von  Miquel. 

J  These  lines  in  1899  carried  85,400,000  tons  of  freight,  or  111,500 
tons  per  mile  of  line.  In  that  portion  of  the  district  through  which  the 
Government  proposes  to  build  the  Rhine-Elbe  canal,  the  traffic  density 
rose  to  250,000  tons  per  mile  of  railway.  See  Statistik  der  Gueterbewe- 
gung  auf  Deutschen  Eisenbahnen,  nach  Verkehrsbezirken  geordnet,  1899; 
Archiv  fuer  Eisenbahnwesen,  1900,  Heft  5  ;  and  Zeitung  des  Vereins 
Deutscher  Eisenbahnverwaltungen,  December  12  and  19,  1900. 

Poor's  Manual  of  Railroads,   1900.      The  Pittsburg  and  Lake   Erie 


78  RAILWAY   RATES 

ing  rapidly;  but  the  Government  is  right,  he  holds, 
in  maintaining  that  it  is  out  of  the  question  to 
build  new  through  lines,  or  to  lay  more  than  three 
additional  through  tracks,  or  to  increase  materially 
the  existing  terminal  facilities,  although  these  last 
are  scarcely  adequate  for  the  present  volume  of 
traffic.  The  great  rise  in  the  price  of  land  caused 
by  the  extraordinary  industrial  development  which 
began  in  1886-87,  ^.nd  continued  with  slight  inter- 
ruptions to  the  close  of  the  century,  has  made  such 
measures  quite  impossible. 

Mr.  Todt  next  states  that  in  the  last  10  years  the 
train-load  in  the  coal  traffic  has  been  raised  from 
400  to  500  tons,  and  that  it  will  probably  reach  600 
tons  in  19 10.  The  average  load  of  the  coal  cars  has 
already  been  raised  to  a  little  over  12  tons,  by  the 
introduction  of  cars  with  a  capacity  of  15  tons;  by 
19 10  the  lo-ton  cars  will  be  almost  entirely  dis- 
placed, and  the  average  load  of  the  coal  car  increased 
to  a  little  over  14  tons.  The  economy  of  large  cars 
Mr.  Todt  illustrates  by  saying  that  a  train  carrying 
600  tons  loaded  in  15-ton  cars  would  occupy  50 
per  cent  less  space  than  a  train  of  the  same  weight 
made  up  of  lo-ton  cars;  and  that  this  is  a  saving 
of  great  importance,  in  view  of  the  fact  that  they 
were  suffering  from  an  insufficient  number  of  through 
tracks,  and  still  more  from  a  lack  of  terminal  facili- 

R.  R.  Co.  operates  i8o  miles  of  railway  between  Pittsburg  and  Youngs- 
town,  Ohio,  and  carried,  in  1899,  77,500  tons  per  mile  of  line. 


RAILWAY   REVENUE    AND    EFFICIENCY 


79 


ties.  If  the  Government  could  but  make  up  its  mind 
to  adopt  2o-ton  cars,  a  further  saving  of  25  per 
cent  to  30  per  cent  in  track  space  could  be  effected  * 
But  he  feared  that  was  out  of  the  question,  for  several 
reasons. 

To  begin  with,  to  replace  the  present  stock  of 
coal  and  coke  cars  with  20-ton  cars  would  cost 
500,000,000  marks  —  double  the  cost  of  the  pro- 
posed Rhine-Elbe  canal.  Besides,  it  would  be 
wasteful  to  discontinue  the  use  of  cars  that  still  had 
from  20  to  30  years  of  life,  to  say  nothing  of  the 
danger  of  overstimulating  the  car-manufacturing 
industry  by  placing  an  order  of  500,000,000  marks 
to  be  filled  within  10  years.  But  of  much  more 
importance  was  the  consideration  that  the  perma- 
nent way  as  a  rule  permitted  a  pressure  of  only 
7  tons  per  car-wheel,  though  on  some  portions  of 
the  main  lines  the  limit  of  pressure  was  being 
raised  to  8  tons.  A  20-ton,  4-wheel  car  would 
exert  a  pressure  per  wheel  of  7.5  to  8  tons,  and  it 
was  entirely  out  of  the  question  to  incur  the  expense 

*  Compare  Organ  fuer  die  Fortschritte  des  Eisenbahnwesens,  1891, 
Ergaenzungsheft. 


80 


RAILWAY   RATES 


of  raising  the  whole  permanent  way  to  the  8-ton 
standard*  It  was  true,  indeed,  that  a  20-ton 
car  running  on  two  4-wheel  trucks  would  exert  a 
pressure  per  wheel  of  only  four  to  five  tons,  but 
such  cars  were  so  much  more  costly  than  the 
4-wheel  cars  that  the  Government  could  not  think 
of  supplying  them.  These  arguments  of  Mr.  Todt 
have  been  often  quoted  by  the  Ministers  of  Finance 
and  of  Public  Works  in  support  of  the  Government's 
recent  canal  bills. 

The  dependence  of  the  Government  upon  railway 
revenue,  and  its  unwillingness  to  sanction  heavy  out- 
lays which  would  not  immediately  produce  cor- 
respondingly large  returns,  was  also  responsible  for 
the  failure  to  equip  the  railways  of  the  Ruhr  district 
properly,  when  it  had  a  chance  years  ago,  with  third 
and  fourth  tracks  and  terminal  facilities.  There 
were  in  1899,  all  told,  only  75  miles  of  third  and 
fourth  track  upon  the  Prussian  railways,  and  in 
the  Ruhr  district  only  11  miles. f     In  other  words, 

*  Compare  also  Professor  Goering  in  Zeitschrift  des  Vereins  Deutscher 
Ingenieure,  March  19,  1898  ;    and  Stahl  und  Eisen,  August  i,  1898. 

t  Stalistik  der  im  Betriebe  befindlichen  Eisenbahnen  Deutschlands,  bear- 
beitet  im  Reichs-Eisenbahn-Ami,  1S99. 


State  Railways 

State  Railways 

OF  Prussia 

OF  Ruhr  District 

Miles 

Miles 

Single  track       .     .     . 

11,290 

248 

Double  track     .     .     . 

7.532 

327 

Third  track  .... 

24 

8 

Fourth  track     .     .     . 

51 

3 

RAILWAY    REVENUE    AND    EFFICIENCY  81 

there  is  hardly  any  separation  of  the  different  sorts 
of  traffic  moving  in  the  same  direction:  express 
and  local  passenger  trains,  "through"  and  local 
freight  trains,  all  run  on  the  same  track,  as  a  rule, 
even  in  the  Ruhr  district,  which  is  said  to  have  the 
densest  railway  traffic  in  the  world.  Freight  trains, 
therefore,  have  constantly  to  be  side-tracked  in  order 
to  allow  passenger  trains  to  pass;  and  the  time 
during  which  they  are  thus  held  back  is  made  unduly 
long  by  the  fact  that  there  are  not  enough  stations 
equipped  with  sufficient  sidings.  If  there  were 
enough  stations  properly  supplied  with  side-tracks, 
freight  trains  might  slip  from  one  station  to  another 
between  passenger  trains  that  follow  each  other  com- 
paratively closely;  but  under  present  conditions 
they  must  often  wait  for  several  passenger  trains  to 
pass  before  they  may  venture  to  run  to  another  sta- 
tion. This  is  the  explanation  of  the  frequent  serious 
blocks  in  traffic  in  the  Ruhr  district  and  of  the  so- 
called  car  famines,  there  and  elsewhere,  which  pre- 
vent the  Railway  Department  from  getting  the 
maximum  use  out  of  its  rolling  stock.  This  is  a 
matter  of  importance  both  for  the  railways  and  the 
general  public.  The  rolling  stock  of  the  Prussian 
railways  represents  a  heavy  investment  of  capital 
that  rusts  out  almost  as  quickly  as  it  wears  out ;  and 
the  coal-mine  operators,  for  example,  complain  that 
the  failure  of  the  Railway  Department  to  furnish 
cars  leads,  at  times,  to  such  an  accumulation  of  coal 


82  RAILWAY   RATES 

at  the  mines  as  to  necessitate  the  temporary  closing 
down  of  their  works  * 

In  the  course  of  the  controversy  over  the  Prus- 
sian Government's  recent  canal  bills,  it  was  sug- 
gested, as  an  alternative  scheme,  that  the  State 
The  Railways  as  relieve  the  Congestion  of  traffic  in  the 
Mere  Feeders  to  Ruhr  district  by  building  from  the 
Waterways  ^j^-^^^  ^^  ^j^^   j^j^^  ^  railway  which 

should  carry  freight  only,  and  which  should  be 
equipped  with  cars  of  a  capacity  of  30  and  45 
tons.  It  was  maintained  that  such  a  railway  would 
begin  operations  with  an  annual  traffic  of  21,000,000 
to  22,000,000  tons.  But  Mr.  Todt  met  the  sugges- 
tion by  asserting  that  fully  two-thirds  of  the  traffic 
in  contemplation  would  continue  to  enter  and  leave 
the  Ruhr  district  by  way  of  the  Rhine,  making  use 
of  the  proposed  railway  within  the  district  for  only 
an  average  haul  of  25  miles. f  It  would  be  un- 
profitable, he  said,  to  spend  a  large  sum  on  a  rail- 
way from  the  Rhine  to  the  Elbe,  when  that  railway 
would  be  used  only  at  one  end  —  would  become, 
in  effect,  only  a  30  or  40  mile  feeder  to  the  Rhine 
traffic.  In  that  remark,  Mr.  Todt  put  his  finger 
on  one  of  the  chief  immediate  reasons  for  the 
Government's  canal  project,  so  far  as  it  is  put  for- 


*  Stahl  und  Eisen,  1898,  pp.  165,  689  and  1124. 

t  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  January  3, 
1900.  Reprinted  under  the  title,  Die  Gueterbahn,  in  Sammlung  von 
Schriften  zur  Kanalfrage.  Compare  also  Sympher  :  Die  Wirthschaftliche 
Bedeuiung  des  Rhein-Elbe-Kanals,  Vol.  I,  pp.  26  and  27. 


RAILWAY    REVENUE   AND    EFFICIENCY  83 

ward  especially  with  a  view  to  meeting  the  exigen- 
cies of  the  situation  in  the  Ruhr  district.  Water 
transportation  in  Germany,  especially  by  the  larger 
rivers,  is  in  the  lead ;  it  takes  much  of  the  profitable 
long-distance  traffic  from  the  railways,  leaving  them 
impoverished.  To  make  money  and  thus  be  in  a 
position  to  make  itself  efficient,  a  railway  needs 
the  whole  business  arising  from  the  industry  of  any 
particular  region,  like  that  along  the  Ruhr,  and  not 
merely  the  fag-end  of  that  business  within  the 
region  itself. 

In  1894,  before  he  had  become,  in  hopelessness 
of  getting  anything  better,  a  convert  to  the  Govern- 
ment's canal  policy,  Mr.  Todt  made  this  idea  stand 
out  in  the  sharpest  possible  manner.  At  that  time 
he  cited  the  condition  existing  in  the  Ruhr  district 
as  proof  of  the  assertion  that  the  railways  must  be 
allowed  to  make  their  rates  sufficiently  elastic  to 
meet  the  competition  of  the  waterways  and  to  de- 
velop long-distance  traffic*  The  traffic  carried  into 
and  out  of  the  district  by  way  of  the  Rhine  ports, 
Ruhrort,  Duisburg  and  Hochfeld,  he  said,  went  on 
an  average  only  19  miles  by  rail.  The  freight  cars 
engaged  in  this  traffic  made  annually  80  round 
trips  of  a  little  over  30  miles  each,  or,  in  the  aggre- 
gate, 2500  miles,  which  particular  achievement  was 
to  be  contrasted  with  the   60   round   trips   of   175 

*  Zeitung  des  Vereins  Detitscher  Eisenbahnverwaltungen,  March  7, 
1894,  and  January  19,  1898;  also  Archiv  fuer  Eisenbahnwesen,  1 887. 


84  RAILWAY  RATES 

miles  each  —  or  a  total  of  10,500  miles  —  made  by 
the  average  freight  car  on  the  Prussian  railways  in 
general.  Whether  the  round  trip  was  30  miles  or  175 
miles,  moreover,  in  either  case  two  days  must  be 
allowed  for  loading  and  unloading.  The  result  was 
that  the  work  done  by  a  freight  car  in  the  Rhine  port 
traffic  was  only  one-quarter  of  that  done  by  the  aver- 
age freight  car  of  the  Prussian  railway  as  a  whole. 
To  put  the  matter  somewhat  differently,  the  average 
receipts  per  ton-mile  for  the  short-haul  Rhine  port 
traffic  were  about  2.422  cents,  and  they  barely  cov- 
ered expenses.  On  the  other  hand,  in  the  coke  and 
iron-ore  traffic  between  the  Ruhr  district  and  the 
Saar  coal  and  iron  fields,  which  involved  a  haul  each 
way  of  220  miles,  the  average  receipts  per  ton-mile 
were  0.761  cent,  and  they  yielded  a  handsome  profit 
over  expenses. 

Mr.  Todt  concluded  his  argument  with  the  state- 
ment that  fully  one-half  the  expenses  of  the  Railway 
Department  were  incurred  in  paying  interest  on  the 
railway  debt,  and  were  independent  of  the  volume 
of  traffic.  One-quarter  to  one-half  of  the  operating 
expenses,  also,  were  independent  of  the  volume  of 
traffic  —  within  very  wide  limits.  In  other  words, 
67  to  75  per  cent  of  the  expenses  of  doing  business 
were,  within  certain  limits,  independent  of  the  vol- 
ume of  business  done ;  and  the  only  means  of  reduc- 
ing the  cost  per  unit  of  business  done  was  to  increase 
the  aggregate  of  units.     He  drew  attention  to  the 


RAILWAY    REVENUE    AND    EFFICIENCY  85 

fact  that  from  1887-88  to  1891-92  the  average 
train-load  had  remained  practically  stationary  at 
159  tons.  That  load  was  most  unsatisfactory,  when 
one  realized  that  it  was  considerably  below  the  haul- 
ing power  of  the  locomotives  and  remembered  that 
85  per  cent  of  the  traffic  of  the  Prussian  railways 
was  carried  in  car-load  lots  of  10  tons.  Unbending 
adherence  to  an  ideal  scheme  of  charges  was  embar- 
rassing the  Railway  Department  in  its  efforts  to  make 
economies  on  the  basis  of  increased  long-distance 
traffic. 

Since  Mr.  Todt  made  this  argument  (which  was 
repeated  in  1898)  the  Government  has  stated  that 
even  the  rate  of  0.484  cent  per  ton-mile  on  the  long- 
haul  coal  traffic  from  the  Ruhr  district  to  Bremen 
and  Hamburg  is  profitable.*  Again,  one  of  its  mem- 
bers has  pointed  out  that,  if  the  4,500,000  tons  of 
coal  which  are  carried  each  year  from  the  Ruhr  dis- 
trict to  Holland  in  solid  through  trains  should  be 
carried  to  the  Rhine  ports  of  the  district  for  trans- 
shipment to  vessel,  the  resulting  congestion  would 
be  all  but  unbearable. f  Handling  traffic  which 
starts  in  the  Ruhr  district  but  goes  through  in  solid 
train-loads  rising  to  500  tons  is  a  very  different  mat- 
ter from  handling  traffic  which  goes  in  small  lots  and 


*  Prettssische  Jahrhuecher,  May,  1901.  Speech  by  Freiherr  von  Zedt- 
litz  und  Neukirch,  parliamentary  leader  of  the  Free  Conservative  Faction. 

t  Speech  in  the  Reichstag,  December,  1900,  by  Minister  of  Public 
Works,  Von  Thielen  ;  cited  in  F.  Fisher's  Die  Brennstoffe  Deutschlands 
undder  Uebrigen  Laender  und  die  Koklen-noth. 


86  RAILWAY  RATES 

Starts  and  ends,  so  far  as  the  railway  is  concerned, 
within  the  district  itself. 

To  sum  up,  the  technical  situation  in  respect  to 
the  Prussian  railways  generally  (not  those  of  the  Ruhr 
district  alone)  is  such  that  an  expenditure  of  hun- 
Political  versus  dreds  of  millions  of  marks  (far  more 
Commercial  Rate-  than  is  neccssary  for  the  proposed 
*^  ^"^  canals)  is  required  to  enable  them  to 

handle  the  increase  of  traffic  that  would  come  with 
such  rates  as  the  present-day  competition  between 
the  world's  great  manufacturing  countries  demands. 
The  financial  situation,  on  its  side,  is  that  the  State 
is  dependent  on  the  railways  for  revenue  and  is 
deprived,  moreover,  of  the  best-paying  long-distance 
traffic  by  the  waterw^ays.  Naturally  enough,  it 
shrinks  from  great  and  expensive  works  which  often- 
times under  existing  conditions  would  not  pay. 

But  there  is  no  difficulty  here,  apart  from  politics, 
which  is  insurmountable.  To  make  possible,  with- 
out strain  upon  the  State's  finances,  the  expenditures 
necessary  for  technical  reconstruction,  all  that  is 
needed  is  a  sufficient  increase  of  railway  earnings 
from  increase  of  traffic  on  all  those  lines  which  are 
not  at  present  overburdened.  That  an  enormous 
increase  of  traffic  could  be  secured  is  clear  beyond 
reasonable  doubt.  The  bulk  of  the  existing  traffic 
that  now  seeks  the  waterways  would  prefer  the  rail- 
ways on  anything  like  equal  terms;  and  all  over 
Germany  lie  resources  either  undeveloped,  or  but 


RAILWAY    REVENUE   AND   EFFICIENCY  87 

partially  developed,  for  lack  of  sufficiently  cheap 
transportation  facilities  *  Were  the  Railway  De- 
partment at  liberty  to  charge  what  the  traffic  will 
bear,  it  could  begin  by  developing  the  more  favorable 
sources  of  traffic,  and  could  from  time  to  time  take 
up  the  development  of  the  less  favorable  sources.  At 
the  same  time,  it  could  be  improving  the  road-bed 
equipment  and  terminal  facilities,  step  by  step,  at 
those  points  where  not  more  traffic  but  better  plant 
is  the  pressing  need.  In  short,  if  it  had  freedom  of 
action,  the  Railway  Department  could  make  one  hand 
wash  the  other,  as  we  say:  it  could  carry  out  a 
scheme  whereby  traffic  earnings  and  expenditure 
would  approximately  keep  pace  with  each  other.  At 
the  end  of  lo  years  (the  time  set  for  the  building  of 
the  Rhine-Elbe  canal)  the  railways,  without  seriously 
impairing  the  railway  surpluses  from  year  to  year, 
could  be  brought  to  such  a  degree  of  efficiency  that 
they  could,  even  without  further  improvement, 
render  greater  and  better  service  than  canals  ever 
could  give. 

But  the  Railway  Department  is  not  at  liberty  to 
charge  on  the  basis  of  what  the  traffic  will  bear ;  and 
hence  it  cannot  get  the  means  to  relieve  the  con- 
gestion of  traffic  in  the  Ruhr  district,  for  the  reme- 
dying of  which  the  Rhine-Elbe  canal  is  primarily 
proposed.     Similarly,    it    cannot    compete    for    the 

*  Compare  Sympher  :  Die  Wirthschaftliche  Bedeutung  des  Rhein-Elbe- 
Kanals. 


88  RAILWAY   RATES 

extensive  traffic  now  carried  by  water  to  and  from 
Mannheim  and  Rotterdam,  or  develop  the  now 
insignificant  but  profitable  rail  traffic  between  the 
Ruhr  district  and  Alsace-Lorraine,  as  well  as  between 
the  Rhine  ports  and  Berlin  and  the  eastern  Prov- 
inces. Furthermore,  it  cannot  render  wholly  un- 
necessary the  project  for  a  canal  costing  40,000,000 
marks  between  Berlin  and  Stettin,  though  the  present 
railway  between  those  cities,  far  from  being  over- 
burdened, carries  little  besides  passengers  and  ex- 
press parcels.  In  a  word,  such  is  the  existing  state 
of  affairs  that  it  is  considered  a  less  difficult  and 
revolutionary  proceeding  to  try  to  help  the  industries 
of  Prussia  by  extending  the  system  of  waterways, 
and  making  that  as  efficient  as  possible  (at  the  same 
time  protecting  railway  earnings  by  canal  tolls),  than 
it  would  be  to  make  war  on  the  existing  waterways 
and  so  provide  the  means  for  making  the  railways 
as  efficient  as  possible.  In  the  United  States  war 
to  the  knife  is  constantly  waged  by  the  railways 
against  the  waterways,  and  that  is  one  of  the  chief 
reasons  why  we  have  efficient  railways. 

In  1886  the  Prussian  Government  informed  the  Diet 
that  it  cost  the  Railway  Department  on  an  average 
0.353  cent  per  ton-mile  to  handle  freight  in  car-load 
lots,  excluding  a  charge  of  0.443  cent  per  ton-mile 
for  interest  on  the  capital  investment.*     In  1901  it 

*  Director  Stroehler  in  Glaser's  Annalen  fuer  Gewerbe  und  Bauwesen, 
October  15,  1890, 


RAILWAY   REVENUE   AND   EFFICIENCY  89 

informed  the  Diet  that  the  cost  in  question  was 
0.346  cent,  excluding  a  charge  of  0.173   cent  per 

ton-mile  for  interest,  at  the  rate  of 
mloIIotTetced  about  4  per  cent  upon  the  capital  * 

In  other  words,  so  far  as  the  average 
of  operating  expenses  per  ton-mile  was  concerned, 
there  had  been  but  the  slightest  improvement 
during  this  period  of  fifteen  years.  The  increase 
of  earning  power  during  the  same  time  has  re- 
sulted, not  from  economies  effected  in  cost  of  carry- 
ing freight,  but  from  the  huge  increase  in  the  volume 
of  traffic.  This  last  has  lowered  from  0.443  cent 
to  0.173  c^i^t  ^^^  s^"^  with  which  each  ton-mile 
of  freight  was  charged  in  order  to  make  a  total 
return  of  4  per  cent  upon  the  capital  invested. 
This  great  increase  in  the  volume  of  traffic,  in  turn, 
has  been  due  only  in  small  part  to  efforts  made  by 
the  Railway  Department  to  force  the  growth  of  traffic 
by  lowering  railway  charges.  In  the  main  it  has  been 
the  result  of  the  industry,  daring  and  genius  of  the 
German  merchants  and  manufacturers,  who  created 
in  all  parts  of  the  world  markets  for  their  products, 
and  who  have  been  enabled  to  reach  those  markets 
through  the  cooperation  upon  the  rivers  of  Germany 
and  upon  the  high  seas  of  a  body  of  men  second 
to  none  in  progressiveness  and  general  efficiency. 
Indeed,  what  German  shipowners,  shipbuilders  and 

*  Mr.  S)Tnpher  in  Zeitsckrifi  fuer  Binnenschiffahrt,  1901,  Heft  10 ; 
and  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  May  4,  1901, 


90  RAILWAY   RATES 

sailors  are  accomplishing  upon  the  ocean  is  one  of 
the  world's  marvels.  There  is  no  reason  to  suppose 
that  upon  the  land  German  railway  men  have  in- 
herently any  less  business  and  engineering  capacity. 
Without  doubt  under  a  regime  of  free  private  rail- 
ways they  would  at  least  acquit  themselves  with 
credit.  As  it  is,  men  like  Mr.  Todt  have  no  chance. 
The  ultimate  and  insurmountable  difficulty  in  the 
Ruhr  district  and  in  the  Prussian  railway  situation 
as  a  whole  is  not  technical  or  financial  —  it  is  po- 
litical. The  Railway  Department  is  not  permitted 
Government  Con-  to  conduct  the  business  of  the  Depart- 
irol  means  Dis-  ment  upon  business  principles,  but  is 
ance  ariff  compelled  to  conform  to  an  ideal 
scheme  of  supposed  equality.  This  pith  of  the 
whole  matter  was  most  pointedly  set  forth  in 
1894  by  the  Minister  of  Finance,  Mr.  von  Miquel, 
when  he  stated  in  the  Prussian  Diet  that  it  would 
prove  impossible  to  retain  the  State  ownership  of  the 
railways  in  Prussia  unless  it  should  be  practicable  to 
make  rates  in  accordance  with  hard  and  fast  rules, 
such  as  those  based  upon  "cost  of  service."  It 
would  be  impossible,  he  said,  to  make  rates  for  par- 
ticular occasions  to  meet  the  needs  of  those  occasions ; 
for  rates  made  in  that  manner  were  arbitrary,  and 
exposed  the  Government  to  the  suspicion  and  to  the 
open  charge  of  favoring  one  district  or  trade  and 
handicapping  another.*    Again,    in    1901,    Messrs. 

*  E.  von  Eynern :  Zwanzig  Jahre  Kanalkaempfe, 


RAILWAY   REVENUE   AND   EFFICIENCY  91 

Schwarz  and  Strutz,  high  officials  in  the  Prussian 
Ministry  of  Finance,  concluded  their  large  volume 
upon  the  Finances  of  the  Railway  Department  with 
the  statement  that  it  was  out  of  the  question  for  the 
Government  to  base  railway  charges  upon  the  prin- 
ciple of  charging  what  the  traffic  will  bear.  That 
practice  would  precipitate  a  ''measureless"  conflict 
of  interests.  It  would  bring  the  question  of  railway 
rates  into  politics,  by  carrying  into  the  domain  of 
rate-making  the  real  and  imagined  conflicts  of  in- 
terest between  the  farmer,  the  trader  and  the  manu- 
facturer; between  the  agricultural  East  and  the 
industrial  West ;  between  the  large  producer  and  the 
small  producer ;  between  the  city  and  the  country.* 
That  this  is  no  mere  conjecture  has  been  made  abun- 
dantly clear  by  the  evidence  now  before  us.  As  a 
matter  of  fact,  whenever  Ministers  of  State  have 
sought  to  depart  from  the  existing  scheme  of  rates, 
and  to  give  the  Railway  Department  more  leeway  in 
respect  to  charging  what  the  traffic  will  bear,  they 
have  invariably  brought  down  upon  their  heads  a 
storm  of  protests  from  local  interests  which  puts  all 
their  other  measures,  Prussian  and  Imperial,  in 
jeopardy.  The  responsibility  for  the  existing  im- 
passe lies  back  of  Railway  Department  and  Min- 
isters. We  have  here  simply  an  example  of  the 
inevitable  break-down  of  large-scale  "cooperation" 
—  of  an  extensive  enterprise  of  State  socialism  car- 

♦  Die  Eisenbahn  Verwaltung,  p.  1053. 


92  RAILWAY   RATES 

ried  on  by  many  persons  who  are  actuated  by  many 
different  sorts  of  motives  and  who  represent  many 
different  degrees  of  intelligence.  Some  one  indi- 
vidual, acting  eye-single  to  his  own  long-run  pecun- 
iary advantage,  and  dealing  in  full  independence 
as  an  outsider  with  all  the  persons  to  be  managed 
and  all  the  interests  to  be  harmonized,  is  essential 
to  the  efficient  conduct  of  business.  Government 
may  make  and  execute  general  laws  holding  the 
managers  of  the  world's  business  to  their  long-run 
interest,  which  they  occasionally  lose  sight  of,  and 
which  is  the  interest  of  all ;  it  may,  in  several  ways, 
give  them  a  general  assistance ;  it  may  not  undertake 
to  do  their  work  for  them. 


CHAPTER  IV 

THE  RECENT  CANAL  BILLS 

In  the  years  1880-90  the  average  sum  received 
by  the  Prussian  railways  for  carrying  one  ton  of 
freight  one  mile  declined  12.25  per  cent,*  and  during 
the  same  time  the  general  level  of  prices  in  Germany 
fell  2  per  cent.  In  the  years  1890-99  the  per  ton 
per  mile  railway  charges  and  the  general  level  of 
prices  declined  3  per  cent  and  16  per  cent  respec- 
tively. It  thus  appears  that  there  is  no  correspond- 
ence in  Germany  between  the  fall  in  rates  and  the 
fall  in  prices;  and  a  comparison  of  Germany  and 
the  United  States  further  reveals  how  little,  relatively, 
the  State  railways  of  Prussia  have  done  toward  help- 
ing the  country  to  adjust  itself  to  the  general  and 
world-wide  fall  of  prices.  In  Germany,  for  the  whole 
period  1880-99,  prices  fell  17.6  per  cent  and  rail- 
way charges  fell  14.7  per  cent.  In  the  United  States, 
on  the  other  hand,  prices  fell  24.3  per  cent  and  rail- 
way charges  41.7  per  cent.f 

*  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  March  9, 
1901. 

t  Quarterly  Bulletin  of  the  Bureau  of  Economic  Researchy  July,  1900. 

93 


94 


RAILWAY   RATES 


This  comparison  is  of  more  significance  than 
might  at  first  sight  appear,  for  Germany  and  the 
United  States  have,  during  the  last  twenty-five  years, 
been  undergoing  the  same  industrial  transforma- 
tion. Each  country  is  changing  from  a  community 
primarily  agricultural  to  what  the  Germans  call  an 
Industrie  Staat;  each  is  constantly  more  and  more 
dependent  on  selling  commodities  on  narrow  mar- 
gins of  profit  in  the  international  market.  In  the 
years  1882-90  Germany  raised  its  share  in  the 
world's  total  import  and  export  trade  from  10.3  per 
cent  to  10.9  per  cent.  From  1890  to  1896  it  made  no 
further  gain ;  but  in  the  four  years  ending  with  1900, 
its  quota  advanced  to  11.8  per  cent.  From  1882  to 
1896  the  share  of  the  United  States  in  the  world's 
international  trade  barely  held  its  own,  at  9.9  per 

Average  Receipts  per  Ton-mile 


Railways  of  Prussia 

Railways  of  the  United 
States 

1880    .    .    . 
1890     .    .    . 

1899    .   .   . 

Cents 
1.498 

I.315 
1.278 

Per  Cent 
100 
87.8 
85.3 

Cents 
1.232 
0.941 
0.725 

Per  Cent 
100 
76.5 
58.3 

Index  of  Prices 


Germany 

United  States 

England 

1880 

1890 

1899 

Per  Cent 

100 

98 

82.4 

Per  Cent 
100 
86.7 
75-2 

Per  Cent 
100 
88.7 

75-7 

THE   RECENT   CANAL   BILLS 


95 


cent;  during  the  four  years  189 7-1 900,  however, 
it  rose  to  10.9.*  Down  to  1893  the  United  States 
was  still  for  the  most  part  an  exporter  of  agricultural 
produce  and  provisions;  but  since  1896,  as  is  well 
known,  it  has  become  a  formidable  rival  of  Great 
Britain  and  Germany  in  the  world's  market  in  many 
kinds  of  manufactured  articles.  Indeed,  German 
men  of  affairs,  in  discussing  the  future  of  Germany, 
are  inclined  to  leave  Great  Britain  out  of  considera- 
tion and  to  confine  themselves  exclusively  to  the 
study  of  the  conditions  of  production  in  the  United 
States. f  But  this  attitude  of  mind  is  somewhat 
recent.     As  late  as  1879  a  number  of  experts  in  iron 

*  G  ewer  be  und  Handel  ini  Deutschen  Reich  (Census  Report),  Vol.  119 
of  Statistik  des  Deutschen  Reichs ;  and  Nauticus,  1901,  Jahrbuch  fuer 
Deutschlands  Seeinteressen, 

Proportion  in  Terms  of  Per  Cent  borne  by  the  Imports  and  Ex- 
ports OF  the  Countries  named  to  the  Total  Exports  and 
Imports  of  the  World 


1882 

1890 

1896 

1900 

Germany 

United  States 

Great  Britain 

France  

10.3 

9-9 
19.7 
II. I 

10.9 

9-9 
18.4 

9-7 

10.8 

94 

17.7 

8.0 

11.8 

10.9 

17.4 

7.8 

t  Stahl  und  Eisen,  June  i,  1901. 


Production  of  Pig  Iron  in  Thousands  of  Tons 


1870 

1880 

1890 

1900 

Great  Britain 

Germany 

United  States 

6,000 

1.391 
1,691 

7,722 
2,729 
3.896 

7.875 
4,658 

9.353 

9,051 

8,422 

ia,789 

[Foot-note  continues  to  page  96. 


96  RAILWAY   RATES 

and  steel,  sent  from  Germany  to  the  United  States, 
reported  that  the  latter  country  could  not  become  a 
competitor  with  Great  Britain  and  Germany  in  the 
international  steel  and  iron  markets,  no  matter  what 
improvements  should  be  made  in  the  conduct  of 
transportation,  for  the  distance  separating  the  coal 
fields  of  Pennsylvania  from  the  ore  deposits  of  the 
region  of  the  Great  Lakes  was  too  great  to  be  bridged. 
Since  1882  the  population  of  Germany  has  in- 
creased by  11,300,000.  More  than  95  per  cent  of 
this  increase  is  found  in  cities  of  upward  of  5000 
inhabitants,  and  more  than  one-half  in  cities  of  up- 
ward of  100,000,  In  other  words,  nearly  the  whole 
increase  of  population  which  has  taken  place  since 
1882  lives  by  trade  and  industry.  A  large  part  of 
that  trade  and  industry  consists  in  the  importation 
of  raw  materials  from  all  parts  of  the  world,  in  work- 
ing up  these  materials  and  in  exporting  the  finished 
product.  Then,  too,  there  is  much  manufacture  of 
native  materials  for  export  and  some  combination  of 
native  materials  with  foreign  materials;  and,  obvi- 
ously, in  all  this  there  is  the  necessity  of  much  trans- 

F.  C.  Huber,  Deutschland  ah  Industriestaat. 

Production  of  Steel  in  Thousands  of  Tons 


1880 


1895 


1899 


Great  Britain 
Germany 
United  States 


1,300 

600 

1,300 


3.400 
2,800 
6,300 


4,900 

6,300 

10,700 


THE   RECENT   CANAL   BILLS 


97 


portation  in  order  to  assemble  and  reassemble  the 
parts  of  the  final  exportable  goods.  The  value  em- 
bodied in  these  goods  by  German  labor  and  capital 
is  the  means  by  which  the  otherwise  surplus  popula- 
tion of  Germany  is  supported.  The  exports  pay  for 
imports  of  agricultural  products  and  other  provi- 
sions to  the  amount  of  one-fifth  to  one-quarter  of 
the  total  consumed  by  the  German  people.*  Should 
the  balance  of  forces  regulating  the  growth  of  exports 
come  to  be  such  as  to  stop  that  growth,  the  imports 
of  food-stuffs  —  and  also  of  materials  for  clothing 
and  shelter  —  would  be  correspondingly  curtailed ; 
and,  as  a  further  necessary  consequence,  the  recent 
increase  of  population  would  be  checked  and  emi- 
gration would  again  assume  the  proportions  of  the 
seventies  and  early  eighties.f    Ability  to  compete  in 

*  Jahrbuch  des  Deutschen  Wirthschaftslebens,  issued  by  the  Institut  fuer 
Gmeinwohl  Frankfurt  a.  M.     Cf.  Handel  und  Gewerbe,  Dec.  14,  1901. 

t  Statisiisches  Jahrbuch  fuer  das  Deutsche  Reich,  annual  issues;  Annalen 
des  Deutschen  Reichs,  No.  3,  1901. 


1880 
1890 
1899 


Imports  per  Head 

Exports 

JER  Head 

Total. 

Food-stuffs 

Total. 

Manufactures 

Marks 

Marks 

Marks 

Marks 

63 

20 

65 

37 

86 

28 

7" 

44 

104 

31 

78 

49 

Exports  and  Im- 
ports PER  Head 


Marks 
128 
156 
182 


1S85-89  .  . 
1890-94  .  . 
1895-99   .   . 

H 


Emigration  per  iooo 
Inhabitants 


3.80 
2.09 
1.84 
0.53 


Increase  of  Population 


3.59  per  cent. 
5-49  "       " 
5-77  "       " 
7.78  "      « 


98  RAILWAY  RATES 

the  world's  market  is  a  vital  matter  for  Germany; 
for  it  is  that  alone  which  has  enabled  her  of  recent 
years  to  substitute  the  export  of  manufactures  for  the 
export  of  men. 

To  this  achievement  the  State  railways  have  con- 
tributed in  the  past  practically  nothing.  The  bur- 
den has  been  thrown  upon  private  industry  and  upon 
Railways  contrib-  Water  transportation.  The  initial  cost 
ute  Little  to  In-  of  production  has  been  reduced  enor- 
dustriai  Growth  j^ously  in  almost  every  branch  of 
manufacture,  and  the  charges  upon  the  waterways 
have  been  cut  in  half  ;  whereas  the  charges 
upon  the  railways  have  declined  but  little,  and 
that  little  not  in  the  form  which  w^ould  be  of  the 
greatest  use.  Nor  will  the  railways  be  able  to  do 
much  more  in  the  future  than  they  have  done  in  the 
past,  since  they  are  handicapped  not  only  by  the 
fact  that  they  may  not  charge  flexible  rates,  but  also 
by  the  fact  that  they  have  been  made  a  leading 
agency  of  taxation. 

It  is  considerations  such  as  these  —  in  respect 
to  population,  exports,  the  world's  competition  and 
the  inability  of  the  railways  to  help  —  that  have 
led  the  recent  administrations  of  Prussia  to  advo- 
cate the  building  of  canals,  notwithstanding  that 
the  administrations  of  the  seventies  and  early  eighties 
had  held  that  the  experience  of  Germany  and  of 
other  countries  had  demonstrated  that  canals  did 
not  pay,  "statements  to  the  contrary  being  usually 


THE   RECENT   CANAL   BILLS  99 

based  on  underestimates  of  cost."  *  Said  Prussia's 
greatest  Finance  Minister,  Von  Miquel,  in  the  course 
of  the  speech  in  which  he  announced  that  it  would 
scarcely  be  feasible  to  raise  by  taxation  the  net  sums 
the  Railway  Department  had  been  contributing  to 
the  exchequer,  "Canals  were  things  of  the  past,  but 
they  have  come  back." 

In  1899  the  Government  laid  before  the  Diet  a 
proposal  to  complete  the  Dortmund-Ems  canal  by 
continuing  it  to  the  Rhine,  at  a  point  near  Ruhrort 
and  Duisburg,  through  the  centre  of  the  Ruhr  dis- 
trict; and  to  build  a  second  canal  navigable  by 
vessels  of  600  tons,  from  a  point  on  the  Dortmund- 
Ems  canal  to  the  Weser,  and  thence  to  the  Elbe 
near  Magdeburg.  The  execution  of  the  proposed 
scheme  would  have  made,  in  connection  with  the 
rivers  and  existing  canals,  a  continuous  trunk-line 
waterway  from  the  southwest  to  the  northeast  of 
Germany,  with  cross  waterways,  or  feeders,  from 
the  Russian  and  Austrian  borders  to  the  Baltic  and 
the  North  Sea. 

The  argument  in  support  of  the  bill  consisted  of 
two  parts. t  The  first  alleged  that  the  railways  of  the 
Ruhr  district  had  come  to  the  limit  of  their  freight- 
carrying  capacity  and  must  be  supplemented  by  a 
canal.  This  argument  resolved  itself  into  the  finan- 
cial consideration    that   in  the  last  few  years  the 

*  Archiv  fuer  Eisenhahnwesen,  1901,  Heft  2. 

t  Zeitung  des   Vereins  Deutscher  Eisenbahnverwaltungen,  March  il 
and  22  and  April  19,  1899. 


100  RAILWAY  RATES 

growth  in  the  net  revenue  yielded  by  the  Railway 
Department  had  not  kept  pace  with  the  increase  in 
gross  revenue  —  that  there  was  danger  of  the  railway 
surplus  falling  off  considerably,  should  the  Govern- 
ment spend  hundreds  of  millions  of  marks  in  bring- 
ing the  rolling-stock,  the  permanent  way  and  the 
station  facilities  of  the  Ruhr  district  up  to  the  re- 
quirements of  the  growing  trade.  Under  the  cir- 
cumstances, the  Government  preferred  to  turn  this 
embarrassing  traffic  over  to  the  proposed  canals. 
The  second  part  of  the  argument,  and  that  upon 
which  the  Government  ultimately  laid  most  stress,* 
was  that  the  agricultural  interests  of  Prussia,  as  well 
as  the  manufacturing  and  mining  interests  of  Ger- 
many as  a  whole,  must  have  lower  transportation 
rates  than  they  had  had  in  the  past ;  that  transporta- 
tion upon  waterways  was  by  nature  cheaper  than 
transportation  upon  railways;  and  that,  therefore, 
the  railway  system  ought  to  be  reenforced  by  canals. 
In  support  of  the  contention  that  transportation 
charges  had  been  too  high,  it  was  pointed  out  that, 
notwithstanding  the  fact  that  the  Ruhr  district  pro- 
duced 39  per  cent  of  the  pig  iron  of  Germany  and 
Silesia  only  8  per  cent,  the  total  traffic  exchanged  by 
rail  between  the  Ruhr  district  and  Berlin  was  but 
one-fifth  as  large  as  the  total  traffic  by  rail  between 
Silesia    and    Berlin.     Again,    though    in    1898    the 

*  Bericht  der  XVIII  /Commission  zur  Vorberathung  des  Ent-MUrfes 
fines  Gesetzes  betreffend  den  Bau  eines  Schiffahrts-kanals  vom  Rhein  bis 
zur  Elbe,  etc.,  pp.  48,  50  and  84. 


THE   RECENT  CANAL   BILLS  101 

provinces  of  East  and  West  Prussia,  Pomerania, 
Posen,  Silesia  and  Brandenburg  sold  and  shipped 
by  rail  some  1,500,000  tons  of  timber  and  lumber, 
less  than  30,000  tons  of  this  reached  Rhenish  Prus- 
sia. The  eastern  Provinces  with  difi&culty  found  a 
market  for  their  surplus  timber,  while  Rhenish 
Prussia  had  to  draw  more  and  more  upon  foreign 
countries  for  its  supply*  It  was  stated  by  the  Min- 
ister of  Agriculture  that  the  opening  of  the  proposed 
canals  would  increase  the  net  annual  revenues  ob- 
tained from  the  Crown  forests  by  10,000,000  marks, 
or  25  per  cent.f 

But  despite  this  second  part  of  the  Government's 
argument,  financial  considerations  came,  in  the  end, 
to  occupy  a  predominant  position.  The  Ministers  in 
Demand  for  charge  of  the  bill  proposed  a  scheme 
Cheaper  Trans-     ^f  graded  canal  tolls,  partly  for  the 

portation  to  be  r         1  •  i  1 

met  by  New  purpose  of  makmg  the  canals  pay  the 

Ca7tals  cost  of  their  maintenance,  as  well  as 

the  interest  on  the  money  invested  in  them,  and  partly 
for  the  purpose  of  regulating  the  competition  of  the 
waterways  with  the  railways.  In  other  words,  to 
protect  its  huge  investment  in  the  railways,  the  Gov- 
ernment proposed  to  get  and  keep  control  over  the 
rates  on  the  waterways  by  means  of  a  scheme  of  tolls 

*  Zeitschrift  fuer  Binnenschiffahrt,  1901,  supplement  to  Heft  5  and 
Hefte  9  and  11.  V.  Kurs,  one  of  the  leading  authorities  upon  the  statis- 
tics of  the  traffic  upon  the  waterways,  states  that  500,000  tons  of  lumber 
are  sent  annually  by  way  of  the  Baltic  and  the  Weser  and  the  Rhine  from 
eastern  Prussia  to  Rhenish  Prussia  and  Westphalia. 

t  E.  von  Eynern:   Z-iJi)anzig  Jahre  Kanalkaeinpfe,  p.  143. 


102  RAILWAY   RATES 

on  the  canals,  which  tolls  should  be  raised  or  lowered 
to  suit  the  combined  requirements  of  commerce  and 
the  State  treasury* 

Mr.  von  Miquel,  as  Minister  of  Finance,  added 
in  the  most  emphatic  terms  that  the  Government 
would  not  listen  to  requests  for  reductions  in  rail- 
way rates  from  districts  or  interests  that  thought  the 
proposed  canal  would  put  them  at  a  disadvantage 
as  compared  with  some  rival  district  or  interest. 
The  Railway  Department  must  continue  to  have  the 
power  to  make  such  rates  as  were  to  its  advantage. 
Should  the  State  enter  upon  the  policy  of  giving  one 
district  or  interest  reduced  railway  rates,  by  way  of 
compensation  for  a  canal  given  to  some  other  dis- 
trict or  interest,  the  result  would  be  that  the  railway 
revenues  would  disappear  through  the  granting  of 
excessive  abatements  in  railway  charges ;  and  again, 
so  far  as  the  canals  were  concerned,  either  the  Gov- 
ernment's plans  would  be  completely  blocked  by 
sectional  jealousies,  and  canal  building  thus  stopped 
altogether,  or  the  Government,  forced  too  far,  would 
waste  the  State's  resources  upon  the  building  of 
unnecessary  canals.  What  the  granting  of  "compen- 
sations" led  to,  the  local  governing  bodies  of  Prus- 
sia had  learned  to  their  sorrow  in  building  highways 
and  "secondary"  or  narrow  gauge  railways.  To 
carry   such    "log-rolling"    into   the   National   Diet 

*  Zeitung  des  Vereins  Deutscher  Eisenbahnvervjaltungen,  April  22, 
1899,  Mr.  von  Miquel;  also  February  9  and  April  27,  1901 ;  and  Zeit' 
ichrift fuer  Binnenschiffahri,  1901,  Hefte  6  and  il. 


THE  RECENT  CANAL  BILLS  103 

would  be  nothing  short  of  disastrous  to  the  public 
treasury* 

Shortly  after  the  Minister  of  Finance  had  taken 
this  uncompromising  stand  on  the  question  of  "com- 
pensations," the  Committee  of  the  Diet,  appointed  to 
consider  the  canal  bill,  reported  adversely.  There- 
upon his  Excellency,  the  Prince  zu  Hohenlohe, 
President  of  the  Prussian  Ministry  and  Chancellor 
of  the  Empire,  who  had  thus  far  taken  no  part  in  the 
debate,  informed  the  Diet  that  the  Government  had 
reconsidered  and  would  take  measures  to  protect 
those  districts  which  should  derive  no  benefit  from 
the  proposed  canals.  If  necessary,  he  said,  such 
districts  should  have  reductions  in  railway  rates 
which  should  counterbalance  the  advantages  accru- 
ing to  their  competitors  from  the  canals.  The  Diet 
then  resubmitted  the  bill  to  the  Committee,  with  in- 
structions to  investigate  and  report  upon  the  matter 
of  compensations.f  Not  long  after,  as  the  Zeitung 
des  Vereins  Deutscher  Eisenbahnverwaltungen  re- 
ported, demands  for  compensations  came  in  from 
all  parts  of  Prussian  territory  in  such  volume  that 
it  was  impossible  to  undertake  to  enumerate  them. 
The  representatives  from  Silesia,  who  feared  the 
competition  of  the  Ruhr  industries  in  Berlin  and 
other    common    markets,   were    most   insistent   on 

*  Zeittmg  des  Vereins  Deutscher  Eisenbahnverwaltungen,  March  22 
and  April  19,  1899. 

t  Ibid.,  June  17  and  28  and  July  i,  1899.  For  characteristic  requests 
see  issues  of  January  11,  March  18,  April  29  and  August  2  and  5,  1899. 


104  RAILWAY  RATES 

compensation.  Their  parliamentary  leader,  Count 
Strachwitz,  induced  the  King  to  sanction  with  his 
own  word  the  promise  of  his  Prime  Minister  in 
respect  to  compensations,  and  then  had  the  whole 
matter  embodied  in  an  amendment  to  the  bill  * 

The  debate  on  the  canal  bill  precipitated  a  conflict 
of  sectional  and  class  interests  that  completely  disil- 
lusionized many  people  who,  under  the  influence  of 

economists  in  reaction  against  Adam 
%^ctfoZTonflicts  Smith,  had  persuaded  themselves  that 

the  State  could  carry  on  the  business 
of  transportation,  foster  infant  industries  and  other- 
wise intervene  in  the  money-getting  affairs  of  men, 
without  reducing  politics  to  "a  seething  and  strug- 
gling aggregate  of  numberless  localisms  —  rarely 
or  never  losing  themselves  in  the  stream  of  na- 
tional feeling."  Count  Kanitz,  the  leader  of  the 
opposition  to  the  bill,  led  off  with  the  statement  that 
the  proposed  canals  would  promote  the  concentra- 
tion of  industry  in  the  West  at  the  expense  of  the 
East,  and  thus  cause  the  latter  to  suffer  still  further 
losses  of  its  laboring  population. f  Count  Limburg- 
Stirum,  leader  of  the  Conservative  Party,  indorsed 
the  statement  that  the  proposed  canals  would  enrich 
the  West  at  the  expense  of  the  East.  Count  von 
Ballestrem,  President  of  the  Reichstag  in  1900  and 

*  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  September 
16,  1899. 

t  E.  von  Eynern :  Zwanzig  Jahrt  Kanalkaempfe. 


THE   RECENT   CANAL   BILLS  105 

leader  of  the  faction  of  the  Centrum  (Catholic  Party), 
said  that  the  newspaper  press  had  represented  the 
conflict  as  one  merely  between  the  landed  interests 
and  the  industrial  interests.  That  was  a  misrepre- 
sentation. The  conflict  was  between  the  industries 
of  the  Ruhr  district,  on  the  one  hand,  and  the 
industries  of  the  Saar,  of  Silesia  and  of  the  other 
industrial  centres,  on  the  other  hand.  His  own  con- 
stituents—  the  farmers,  manufacturers  and  traders 
of  Silesia  —  were  united  in  opposing  the  bill,  unless 
they  could  obtain  satisfactory  concessions  in  the 
way  of  reduced  railway  charges.  Mr.  von  Koeller, 
for  many  years  President  of  the  Prussian  House  of 
Deputies,  indorsed  the  statement  that  the  fight  was 
not  alone  between  industry  and  agriculture,  but  also 
between  the  Ruhr  and  the  other  industrial  centres. 
After  the  bill  had  been  defeated,  the  editor  of  Stahl 
und  Eisen  wrote  that  the  conflict  of  interests  between 
the  different  industrial  centres,  which  had  shown 
itself  in  connection  with  the  debate  on  the  canal  pro- 
posals, was  but  a  reappearance  of  the  old  conflicts 
attending  all  efforts  to  reduce  railway  rates  on  iron 
ores.* 

There  were  many  other  aspects  of  this  seething 
mass  of  localisms.  Hamburg,  for  example,  opposed 
the  canal  on  the  ground  that  it  would  redound  pri- 
marily to  the  benefit  of  Bremen.  Emden,  at  the 
mouth  of  the  Dortmund-Ems  canal,  feared  that  it 

♦  Stahl  und  Eisen,  April  i,  igcx). 


106  RAILWAY   RATES 

would  benefit  the  Dutch  ports  and  their  virtual  out- 
posts, Ruhrort  and  Duisburg.  The  lumber  mills  of 
the  Ruhr  district  feared  that  the  canal  would  bring 
in  the  cheap  timber  and  lumber  products  of  east- 
ern Prussia  and  Russia.  The  coal-miners  of  Saxony 
feared  an  invasion  of  Ruhr  coal.  All  of  these  inter- 
ests and  others,  though  quarrelling  among  themselves, 
the  Agrarians  brought  together  into  a  solid  opposition 
that  defeated  the  Government's  measure.  The 
Agrarians,  or  landed  aristocracy  of  Prussia,  them- 
selves feared  that  the  proposed  canal  would  imme- 
diately and  directly  injure  them  by  facilitating  the 
importation  of  foreign  agricultural  produce;  but 
they  feared  still  more  that  the  proposed  improve- 
ments in  the  means  of  transportation  would  hasten 
Germany's  advance  as  an  industrial  State,  and  thus 
more  remotely  and  indirectly  impoverish  the  landed 
interests  by  increasing  wages  and  the  scarcity  of 
agricultural  labor.  They  also  dreaded,  should  the 
industrial  West  prosper  more  and  more,  the  eclipse  of 
themselves  politically,  through  the  rise  into  power  and 
consideration  of  yet  more  new  men — the  great  leaders 
of  industry,  in  addition  to  bankers  and  merchants.* 
There  was  another  instructive  aspect  of  the  par- 
liamentary struggle  over  the  canal  bill.  When  this 
measure  was  introduced  into  the  Diet,  the  parlia- 
mentary parties  or  factions  did  not  treat  it  at  all  as 

*  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  March  30, 
1901. 


THE   RECENT   CANAL   BILLS  107 

a  party  measure.  The  individual  members  of  each 
party  or  group  approved  the  bill  or  opposed  it,  accord- 
rransportation  ing  as  it  appeared  advantageous  or 
Questions  a7id  harmful  to  their  constituencies.  But 
Party  Politics  ^^  ^^^^^  went  on,  the  measure  be- 
came more  and  more  a  party  measure ;  and  often- 
times the  attitude  of  a  faction  or  party  depended,  not 
upon  the  supposed  merits  or  demerits  of  canals,  even 
when  regarded  from  the  most  parochial  point  of 
view,  but  upon  ulterior  party  motives.  Thus  the 
interest  in  the  bill  of  the  members  of  the  Liberal 
Party  ultimately  came  to  be,  to  no  small  extent,  that 
the  casting  of  the  Conservative  (Agrarian)  vote 
against  the  bill  might  mean  a  permanent  rupture 
between  the  Crown  and  the  Conservative  Party, 
and  therefore  might  lead  to  an  alliance  of  the  Crown 
with  their  own  party.*  Again,  at  one  time  Ger- 
mania,  the  organ  of  the  Catholic  Party,  informed 
"the  friends  of  the  canal,  in  Parliament  and  in  the 
Administration,"  that  if  the  electoral  bill  then  before 
the  Diet  should  be  lost,  the  canal  bill  would  be 
defeated  also.f  The  Conservative  Party,  in  turn, 
opposed  the  bill  partly  in  order  to  demonstrate  to  the 
Crown  that  it  could  not  carry  on  the  Government 
without  the  support  of  the  landed  aristocracy.     It 


*  Preussische  Jahrbnecher,  May,  July,  September  and  October,  1899  5 
and  current  issues  of  Muenchener  Allgemeine  Zeitung. 

t  Muenchener  Allgemeine  Zeitung,  August  15,  1899;  E.  von  Eynern : 
Zwanzig  Jahre  Ka7ialkaenipfe ;  and  G.  Zoepd:  Auswaertige  Handelspolitik 
und  innere  Verkehrspolitik, 


108  RAILWAY  RATES 

had  not  become  reconciled  to  the  new  policy  of  the 
commercial  treaties,  inaugurated  in  the  latter  part 
of  the  eighties  by  the  late  Chancellor  von  Caprivi, 
under  which,  in  1894,  the  duties  on  agricultural 
products  coming  from  Russia  had  been  lowered, 
in  return  for  a  lowering  of  duties  on  German  manu- 
factures exported  to  Russia.  The  Prussian  Gov- 
ernment acknowledged  this  challenge  when  it  replied, 
through  Prince  zu  Hohenlohe,  that  the  canal  bill 
could  not  be  disposed  of  as  a  separate  measure ;  that 
the  final  disposition  of  the  bill  would  have  far-reach- 
ing consequences  for  the  Conservative  Party;  that 
should  there  be  a  rupture  between  that  Party  and 
the  Government,  the  effects  would  be  felt  by  the 
Conservative  Party  when  the  Government  took  up 
the  contemplated  revision  of  the  customs  duties  * 

Two  days  before  the  final  vote  on  the  bill,  the  King 
sent  a  telegram  to  the  Minister  of  the  Interior,  Mr. 
von  der  Recke,  instructing  him  to  request  deputies 
who  were  at  the  same  time  Government  officials  to 
abstain  from  voting  or  to  resign  their  seats,  should 
they  be  unable  to  vote  affirmatively.f  On  Saturday, 
the  19th  of  August,  the  Diet  rejected  by  a  vote  of 
235  to  147  the  proposal  to  connect  the  Dortmund- 
Ems  canal  with  the  Weser  and  the  Elbe ;  and  by  a 
vote  of  275  to  134  the  proposal  to  extend  the  Dort- 
mund-Ems canal  to  the  Rhine.     On  the  following 

*  E.  von  Eynern :  Zwanzig  Jahre  Kanalkaempfe. 
t  Die  A'<7ft<?«,  January  12,  1901 ;  and  E.  von  Eynern:  Zwanzig  Jahre 
Kanalkaempfe. 


THE   RECENT   CANAL   BILLS  109 

day,  Sunday,  the  King  convened  the  Kronrath  and 
signed  the  papers  for  the  removal  from  office  of 
some  eighteen  Landraethe  and  Regierungspraesi- 
denten  who  had  voted  adversely*  He  thereby 
broke  with  one  of  the  finest  unwritten  provisions  of 
the  Prussian  Constitution,  which  is  that  Prussian 
civil  servants  holding  certain  administrative  offices 
may  stand  for  election  to  the  Diet,  and  thus  become 
at  one  and  the  same  time  Crown  officers  and  repre- 
sentatives of  the  people,  thereby  promoting  the 
union  of  the  people  and  the  Government.  Under 
that  traditional  constitutional  arrangement.  Crown 
officers  had  been  oftentimes,  most  advantageously 
to  the  Commonwealth,  the  parliamentary  leaders  of 
groups  or  factions  sitting  in  opposition  to  the  Gov- 
ernment. Struggles  such  as  the  one  just  described 
are  not  the  sort  which  build  up  institutions;  they 
only  degrade  and  destroy. 

In  January,  1901,  the  Government  laid  before  the 
Diet  a  second  revised  canal  bill.  The  bill  of  1899 
had  called  for  an  expenditure  of  261,000,000  marks; 
the  new  bill  proposed  to  expend  339,000,000  marks. 
By  ''way  of  compensations"  the  Government  now 
suggested  a  canal  for  vessels  with  a  capacity  of  600 
tons  from  Berlin  to  Stettin,  and  numerous  river  and 

*  Die  Nation,  April  5, 1901  ;  Muenchener  Allgemeine  Zeitung,  April  3, 
1901  ;  Jahrbuch  fuer  Gesetzgebung,  Venvaltung  und  Voltswirthschaft  im 
Deutschen  Reich,  Vol.  24,  Heft  3,  articles  by  G.  SchmoUer  and  W.  Lotz ; 
and  Freussiscke  Jahrbuecher,  October,  1899. 


110  RAILWAY   RATES 

canal  improvements  in  the  territory  of  the  Weichsel 
and  the  Oder,*  the  region  where  the  Conservative 
Party  is  in  greatest  strength.  It  is  said  also  to  have 
intimated  that  it  would  return  any  favors  shown  in 
the  course  of  the  proceedings  upon  the  canal  bill,  by 
making  corresponding  concessions  when  the  bills 
revising  the  customs  duties  should  come  up.f  The 
demands  from  the  general  public  for  ''compensa- 
tions" were  as  numerous  and  importunate  as  they 
had  been  in  1899,  some  of  the  electorates  even  de- 
manding railways  in  return  for  the  canals  to  be  given 
other  electorates.  J 

The  most  important  speech  upon  this  second  bill 
was  made  by  Baron  von  Zedlitz  und  Neukirch,  for- 
merly President  of  the  Board  of  Maritime  Trade, 
The  Canal Ques-  leader  of  the  "Free  Conservative" 
Hon  and  Customs  faction  of  the  Conservative  Party 
^"^^^^  and   one  of   the    officials   retired   in 

1889  for  voting  against  the  first  canal  bill.§  Von 
Zedlitz  began  with  the  statement  that  the  alternative 
to  lower  railway  rates  was  lower  wages  to  Ger- 
man labor.  All  railway  charges  on  bulky  articles 
ought  to  be  lowered,  he  said,  and  special  reductions 
given  to  those  districts  that  would  derive  no  direct 

*  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  January  1 6, 
1901. 

t  Proteus  in  Die  Nation,  February  g,  1901. 

%  Zeitschrift  fuer  Binnenschiffahrt,  1901,  Heft  10;  Mr.  von  Eynern, 
Chairman  of  the  Committee  on  the  canal  bill. 

§  Zeitung  des  Vereins  Deutscher  Eisenbahnverwaltungen,  March  9, 
April  24  and  May  i,  1901  ;  Zeitschrift  fuer  Binnenschiffahrt,  Hefte  6 
9  and  10  ;   and  Preussische  Jahrbuecher,  May,  190 1. 


THE   RECENT   CANAL   BILLS  111 

benefit  from  the  contemplated  canals.  The  Diet 
could  no  longer  leave  it  to  the  Government  to  take 
the  initiative  in  reducing  rates,  but  would  have  to 
insist  on  getting  direct  control  of  railway  charges. 
Baron  von  Zedlitz  then  introduced  in  the  most  skil- 
ful manner  the  demands  of  the  Conservatives  for 
higher  duties  on  grain,  in  return  for  the  party  vote 
for  the  canal  bill.  He  maintained  that  the  Prussian 
finances  abundantly  justified  the  canal  expenditure, 
but  that  the  finances  of  the  Empire  were  anything 
but  sound.  There  was  great  danger  that  Prussia 
would  be  called  upon  at  any  moment  for  large  con- 
tributions to  the  Empire ;  and  that  danger  could  be 
removed  only  by  putting  the  Imperial  finances  on 
a  sound  basis,  by  raising  the  duty  on  grain  and  other 
agricultural  products.  Until  this  sound  condition  had 
been  attained,  Prussia  would  not  be  justified  in  enter- 
ing upon  the  construction  of  canals,  contemporane- 
ously with  making  heavy  reductions  in  railway  rates. 
The  Ministry  as  a  whole  made  reply  that  the  re- 
quest for  increased  duties  could  not  be  entertained ; 
because  the  Russian  Minister  of  Finance  had  in- 
formed the  Government  that  in  Russia  support  for 
the  commercial  treaties  with  Germany  came  from 
the  agricultural  classes,  and  that  therefore  the  treaty 
to  expire  in  1904  could  not  possibly  be  renewed  on 
any  basis  of  increased  duties  on  grain  imported  into 
Germany.  The  Minister  of  Public  Works,  Mr.  von 
Thielen,  admitted  that  the  costs  of  transportation 


112  RAILWAY   RATES 

must  be  lowered  if  Germany  was  to  continue  to  com- 
pete in  the  international  markets.  But  they  would 
have  to  be  lowered  by  the  building  of  waterways; 
the  railways  could  not  accomplish  it,  since  they  were 
handicapped  by  the  fact  that  they  must  yield  a  large 
net  revenue.  The  Minister  of  Finance,  Mr.  von 
Miquel,  added  that  the  Prussian  Crown  could  never 
afford  to  give  up  the  prerogative  of  fixing  railway  rates 
through  its  Ministers  and  the  Railway  Department. 
Moreover,  to  give  the  Diet  the  power  to  determine 
railway  charges  would  but  demoralize  that  body. 
It  would  lead  to  bitter  struggles,  particularly  between 
those  who  would  wish  to  appropriate  any  existing 
surplus  for  the  construction  of  new  lines  and  those 
who  would  wish  to  apply  it  to  reductions  in  freight 
charges.  It  was  impossible,  also,  to  state  in  advance 
what  reductions  in  rates  could  be  made  after  the 
opening  of  the  canals.  Certain  kinds  of  freight 
would  be  turned  over  almost  entirely  to  the  water- 
ways, and  the  rest  of  the  traffic  would  be  divided  in 
some  proportion  between  the  railways  and  the  water- 
ways through  the  regulation  of  the  tolls  on  the  canals. 
It  was  not  proposed  to  regulate  the  railway  rates 
by  the  water  rates;  and  those  manufacturers  and 
miners  who  were  supporting  the  canal  bill  because 
they  expected  keen  competition  between  the  water- 
ways and  the  railways  would  be  disappointed.  The 
fact  that  the  State  had  invested  7,000,000,000  marks 
in    railways    made    it    imperative    that    the    State 


THE  RECENT   CANAL   BILLS  113 

should  retain  full  control  over  both  rail  and  water 
charges.* 

The  Conservative  Party  finally  formed  an  alliance 
with  the  Centrum,  or  Catholic  Party,  for  the  follow- 
ing purposes:  to  accept  the  canal  and  the  river 
improvements  proposed  for  the  territory  east  of  the 
Elbe;  to  reject  the  proposal  to  connect  the  Rhine, 
Weser  and  Elbe ;  and  to  urge  the  connection  of  the 
Dortmund-Ems  canal  with  the  Rhine  by  improving 
the  river  Lippe.  The  improvements  which  the 
Government  had  proposed  for  the  territory  east  of  the 
Elbe  the  coalition  accepted,  as  local  measures  which 
would  benefit  the  eastern  agricultural  interests  with- 
out facilitating  the  importation  of  foreign  food-stuffs. 
It  rejected  the  proposed  Rhine-Weser-Elbe  canal, 
because  this  would  expose  the  western  wheat  and 
sugar  to  the  competition  of  the  eastern  wheat  and 
sugar ;  it  approved  the  policy  of  respecting  the  claims 
of  the  agricultural  interests  of  the  West  to  the  first 

*  Zeitschrift  fuer  Binnenschiffahrt,  1901,  Hefte  9,  10  and  11.  After 
the  subsequent  withdrawal  of  the  canal  bill  of  1901  (for  reasons  presently 
to  be  described)  there  was  some  agitation  for  the  formation  of  a  stock 
company  to  extend  the  Dortmund-Ems  canal  from  Dortmund  to  the 
Rhine.  The  Government  repeated  the  statement,  made  under  similar 
circumstances  in  1894,  that  it  might  conceivably  grant  a  charter  to  a  stock 
company  for  the  building  of  the  proposed  canal,  but  that  under  no  circum- 
stances would  it  give  up  the  right  to  regulate  the  tolls  upon  the  canals. 
Moreover,  as  throwing  light  on  the  complete  State  policy,  several  months 
previous  to  this  occasion  Herr  von  Miquel  had  informed  the  Diet  that 
the  Government  was  giving  most  careful  consideration  even  to  the  ques- 
tion of  reestablishing  tolls  upon  the  rivers.  (See  Jahrbuecher  fuer  Na- 
tionaloekonotnie,  1901,  Heft  3;  Volkswirthschaftliche  Chronik.)  The 
reason  for  this  was  that  not  only  was  it  proper  that  those  who  used  the 
rivers  should  reimburse  the  State  for  maintaining  and  improving  the  rivers, 
but  also  it  might  become  necessary  to  regulate  the  competition  to  which 
the  State  railways  were  exposed. 


114  RAILWAY   RATES 

right  to  the  western  market,  and  of  affording  relief 
to  the  agricultural  East  by  making  low  rates  on 
eastern  wheat  and  sugar  destined  for  export  —  in 
other  words,  the  extension  of  the  policy  upon  which 
the  Government  had  entered  when  it  established  the 
disguised  export  bounty  on  grain  *  It  also  opposed 
the  Rhine-Weser-Elbe  canal,  on  the  ground  that  it 
would  stimulate  unduly  the  development  of  western 
manufacturing  industry.  Finally,  it  demanded  that 
the  Dortmund-Ems  canal  should  be  connected  with 
the  Rhine,  if  at  all,  by  way  of  the  river  Lippe,  and 
not,  as  proposed  by  the  Government,  by  way  of  the 
river  Ems;  because  the  Lippe  connection  was  more 
roundabout,  and  would,  therefore,  neither  benefit  the 
Dutch  ports  nor  facilitate  the  importation  of  for- 
eign wheat  and  lumber,  as  much  as  would  the  Ems 
connection.!  As  the  Catholic  Party  holds  the  bal- 
ance of  power  in  the  Prussian  Diet  and  occupies  a 
leading  position  in  the  Reichstag,  the  combination 
was  a  powerful  one.  The  Administration's  local 
election  agents  reported  that  the  coalition  had  been 
made  to  cover  even  the  management  of  the  elections, 
and  that  therefore  there  would  be  no  chance  of  the 
Government  getting  a  Diet  favorable  to  the  canal 
proposals,  should  the  present  Diet  be  dissolved  and 
an  appeal  made   to   the   country.  J      The   Govern- 

*  G.  Zoepfl :  Auswaertige  Handehpolitik  und  innere  Verkehrspolitik. 
t  Sympher :   Emsckerthnllinie  und  Kanalisirung  der  Lippe, 
X  Muenchener  Allgemeine  Zeitung,  May  3,  4  and  6,  1901.     Compare 
also:  Preussische  Jahrbuecher,  ]vLnQ,  1901. 


THE   RECENT   CANAL   BILLS  115 

ment,  seeing  that  it  was  hopeless  to  continue  the  fight 
at  that  time,  accordingly  abandoned  the  bill  by  clos- 
ing the  session  of  the  Diet. 

The  giving  up  of  the  canal  bill  of  1 901  was  followed 
by  the  resignation  of  Mr.  von  Miquel  and  the  reor- 
ganization of  the  Prussian  Ministry.  Shortly  after 
Legislative  Rate-  Von  Miquel's  retirement  from  office, 
making  politically  he  permitted  himself  to  be  inter- 
Disastrous  viewed  on  the  subject  of  bringing  the 

State  railways  of  Prussia,  Saxony,  Wuertemberg, 
Bavaria,  Baden  and  Hesse  under  one  management. 
He  pointed  out  that  the  practice  of  the  several  States 
of  managing  their  respective  railways,  not  in  the  in- 
terest of  Germany  as  a  whole,  but  rather  on  the  sup- 
position that  the  particular  interests  of  the  several 
States  were  in  conflict  with  that  general  interest,  was 
a  condition  of  affairs  which  could  not  be  suffered  to 
continue  without  great  harm  to  the  material  welfare 
of  the  German  people.  It  was  most  desirable  to 
bring  the  railways  of  Germany  under  one  common 
head;  but  that  common  head  must  be  Prussia,  not 
the  German  Empire.  In  Prussia  the  fixing  of  rail- 
way rates  was  a  prerogative  of  the  Crown  —  the  Diet 
had  no  direct  hand  in  it.  But  if  the  railways  of  the 
separate  States  should  be  transferred  to  the  Empire, 
the  Reichstag  could  and  would  insist  upon  the  right 
to  make  and  revise  the  railway  charges.  The  day 
on  which  that  power  should  be  given  to  the  Reichs- 
tag would,  however,  mark  the  beginning  of  a  great 


116  RAILWAY   RATES 

corruption  of  the  German  electorate.  Already  the 
character  of  the  German  voters  was  such  that  they 
sent  to  the  Reichstag  many  representatives  who 
asked,  not  how  a  given  measure  would  serve  their 
common  country,  but  how  it  would  serve  their  par- 
ticular constituents.  With  the  existing  tendency  to 
reduce  the  Representative  in  the  Imperial  Reichstag 
to  the  position  of  an  instructed  delegate,  whose  busi- 
ness it  was  to  "get  something"  for  his  constituents, 
the  bestowal  upon  the  Reichstag  of  power  over  rail- 
way rates  would  be  nothing  short  of  disastrous  to 
the  politics  of  Germany,  as  well  as  to  the  economic 
development  of  the  country.* 

Undoubtedly  the  Crown  prerogative  in  Prussia 
serves  as  a  considerable  barrier  against  the  intrusion 
of  politics,  in  its  ordinary  meaning,  into  the  business 
of  making  railway  rates  and  into  the  other  details  of 
general  railway  management,  as  there  carried  on  by 
the  State;  but  politics,  nevertheless,  has  come  in. 
Also,  to  look  at  the  matter  from  the  other  side, 
undoubtedly,  were  this  barrier  removed,  the  Govern- 
ment's transportation  business  would  have  a  greater 
corrupting  influence  upon  politics  —  as  that  term  is 
understood  —  in  its  higher  meaning.  We  are,  in 
fact,  dealing  here  with  principles  of  politics,  true 
everywhere  and  always,  irrespective  of  constitu- 
tional arrangements,  provided,  indeed,  there  is  an 

*  Zeitung  des  Verehis  Deutscher  Eisenbaknverwaliungen,  August  28, 
1 901. 


THE   RECENT   CANAL   BILLS  117 

elected  Legislature.  Said  Burke,  ''If  we  do  not  per- 
mit our  members  to  act  upon  a  very  enlarged  view 
of  things,  we  shall  at  length  infallibly  degrade  our 
national  representation  into  a  confused  and  scuffling 
bustle  of  local  agency."*  For  the  State,  beyond  the 
exercise  of  minor  police  powers,  to  interfere  at  all 
with  the  pocket-book  affairs  of  its  citizens,  is  practi- 
cally to  compel  representatives  not  to  act  upon  an 
enlarged  view  of  things,  and  to  become  so  far  forth 
precisely  the  chaffering  and  bargaining  tools  of  local 
agency.  In  connection  with  every  tariff  bill,  every 
transportation  measure,  to  the  end  of  time,  there  is 
certain  to  be  a  heart-breaking  exhibition  of  greed  and 
absence  of  patriotism.  Only  when  a  Government 
sticks  to  its  simple  and  proper  functions  —  preven- 
tion of  violence  and  fraud,  promotion  of  health  and 
education ;  only  when  it  conducts  its  affairs  as  nearly 
as  may  be  in  accordance  with  that  grandest  of  po- 
litical concepts,  the  historical-legal  fiction  that  Gov- 
ernment is  constituted  to  obviate  "the  inconveniences 
of  the  state  of  nature,"  not  to  create  and  maintain 
organized  society  itself  —  only  then  is  there  a  fair 
chance  for  the  formation,  in  the  place  of  many  fac- 
tions, of  two  parties  in  the  Legislature,  composed 
of  intelligent,  patriotic,  high-minded  members.  In 
short,  there  is  but  one  way  to  make  a  serious  attempt 
to  keep  business  out  of  politics,  and  that  is  for  the 
State  itself  to  keep  out  of  business. 

*  Speech  at  the  Guild  Hall  in  Bristol. 


118  RAILWAY   RATES 

In  the  winter  of  1904  the  Government  abandoned 
the  plan  to  connect  the  Rhine,  Elbe  and  Oder  by 
means  of  a  canal,  and  accepted  as  unalterable  the 
Berlin  to  remain  ^^^t  that,  for  purposes  of  trade,  Berlin 
tnore  Retnote from  must  Continue  to  be  more  remote  from 
the  Rhine  than       ^^  industrial  Centres  on  the  Rhine 

from  New  York  . 

than  those  centres  are  remote  from 
New  York,  Buenos  Ayres  and  Odessa.  It  brought  in 
a  canal  bill  based  on  the  compromise  offered  in  1901 
by  the  coalition  between  the  Conservative  Party  and 
the  Centrum.  The  Dortmund-Ems  canal  is  to  be  com- 
pleted by  being  extended  to  the  Rhine.  On  the  east, 
the  Dortmund-Ems  canal  is  to  be  connected  with  the 
Weser,  but  it  is  not  to  be  connected  with  the  Elbe. 
East  of  Berlin  the  Oder  and  its  tributaries  are  to  be 
improved ;  and  Stettin  is  to  be  given  a  ''differential" 
by  means  of  the  building  of  a  canal  between  Berlin 
and  Stettin.  That  canal  will  carry  vessels  with  a 
capacity  of  650  tons ;  it  will  cost  more  than  the  rail- 
way which  connects  Berlin  with  Stettin  and  carries 
less  than  150  ten-ton  car-loads  of  through  freight  a 
day. 

The  Prussian  canal  bills  of  1899  and  1901  were 
based  on  the  supposition  that  the  transportation 
charges  upon  the  canals  would  be  fixed  by  steam 
vessels  which  would  themselves  carry  600  tons  each 
and  would  tow  two  barges,  each  with  a  capacity  of 
600  tons.     It  was  assumed  that  under  those  condi- 


THE   RECENT   CANAL  BILLS  119 

tions  the  average  cost  of  moving  low-value,  bulky 
commodities,  in  large  loads  and  over  an  average 
distance  of  say  225  miles,  would  be  0.242  cent  per 
ton-mile.  That  cost  included  interest  at  5  per  cent  on 
the  capital  invested  in  the  vessels,  and  sinking-fund 
payments  at  the  rate  of  6  per  cent  a  year,  as  well  as 
the  cost  of  keeping  the  vessels  in  repair.*  To  that 
average  cost  would  have  to  be  added  the  tolls,  which 
were  to  range  from  0.087  ^^^^  P^^  ton-mile  to  0.346 
cent  on  bulky  commodities,  and  were  to  rise  to  0.692 
cent  on  high-class  freight.  The  Government  ar- 
gued that,  even  after  the  tolls  had  been  imposed,  the 
cost  of  moving  freight  by  water  would  be  much  below 
the  charges  made  in  the  past  by  the  Railway  Depart- 
ment, which  had  been  such  as  to  yield,  in  1899,  0.893 
cent  per  ton-mile  on  the  so-called  "exception-rate" 
traffic,  and  1.253  cents  on  the  traffic  as  a  whole.  It 
added,  however,  that  the  saving  to  be  effected  by  the 
building  of  waterways  was  not  quite  so  large  as  might 
appear  at  first  sight,  as  much  water-borne  traffic 
would  have  to  use  the  railways  before  reaching,  and 
after  leaving,  the  waterway,  and  that  would  involve 
the  comparatively  heavy  expense  of  transfer  from 
water  to  rail.  For  example,  it  said  that  a  certain 
kind  of  low-value  freight,  shipped  by  water  a  dis- 
tance of  225  miles,  would  cost  0.412  cent  per  ton- 


*  Sympher :  Die  Wirthschaftliche  Bedeutung  des  Rhein-Elbe  Kanah ; 
or  Die  Wasserwirthschaftliche  Vorlage ;  or  Wasserwirthschaftliche  Vorar- 
beiten. 


120  RAILWAY  RATES 

mile.  But  should  that  freight  have  to  go  five  miles 
by  rail  in  order  to  reach  the  water,  the  preliminary 
rail-haul,  together  with  the  cost  of  transfer,  would 
raise  the  average  cost  on  the  whole  haul,  by  rail  and 
by  water,  from  0.412  cent  to  0.488  cent.  Should 
the  freight  have  to  go,  in  addition,  ten  miles  by  rail 
after  leaving  the  water,  the  average  cost  per  ton-mile 
would  be  raised  to  0.609  cent.  And  the  Govern- 
ment added  that  the  bulky  freight  leaving  and  enter- 
ing the  Ruhr  district  would  have  to  use  the  railways 
at  the  beginning,  as  well  as  at  the  end,  of  its 
journey. 

A  small  body  of  men  of  information  and  standing 

opposed  the  canal  bills,  on  the  ground  that  a  modern 

railway  could  cut  under  any  rates  that  600-ton  ves- 

,  „     ,   sels  could  make.     They  added  that 

River  and  Canal  ^  ■' 

Transportation  modem  railways  would  have  the  fur- 
not  Cheaper  than  ther  merit  of  extending  low  rates  to 
the  whole  of  Germany,  whereas  water- 
ways at  best  could  give  low  rates  to  only  a  limited 
portion  of  Germany. 

This  body  of  men  is  well  represented  in  Mr.  von 
Borries,  who  is  a  Prussian  railway  official,  as  well  as 
one  of  the  editors  of  the  leading  encyclopaedia  *  sum- 
marizing the  technics  of  railways.  The  analysis  of 
the  statistics  led  Mr.  von  Borries  to  conclude  that  it 
cost  the   Railway  Department  0.215  cent   per  ton- 

*  Die  Eisenbahn-Technik  der  Gegenwart,  Vol.  Ill,  Pt.  II.  This  publi- 
cation is  edited  by  Messrs.  Blum,  Von  Borries  and  Borkhausen. 


THE   RECENT   CANAL   BILLS  121 

mile  to  handle  long-distance  traffic  carried  in  train- 
loads  of  400  tons.  The  estimate  assumed  that  the 
freight  in  question  would  contribute  its  share  to  main- 
tenance and  renewal  of  roadbed  and  rolling  stock,  as 
well  as  to  the  expenses  of  general  administration. 

Mr,  von  Borries  also  concluded  that  the  actual  cash 
outlay,  including  maintenance  and  renewal  of  rolling 
stock,  involved  in  handling  long-distance  traffic  in 
400-ton  train-loads  was  0.119  cent  per  ton-mile.  Mr. 
Sympher,  the  Government's  expert  on  questions  of 
the  cost  of  moving  traffic  by  water,  was  of  opinion 
that  the  average  cash  outlay  involved  in  moving  long- 
distance barge-load  freight  upon  the  600-ton  canal 
vessels  would  be  0.104  cent  per  ton-mile.  These 
figures  show  conclusively  that,  if  Prussia  were  to  bring 
its  railways  to  modern  standards  of  efficiency,  German 
trade  and  industry  would  have  vastly  lower  rates 
than  it  can  hope  to  attain  under  the  use  of  600-ton 
canals. 

To  the  arguments  based  on  these  figures  the  Gov- 
ernment made  no  reasoned  reply.  It  contented  it- 
self with  the  statement  that  the  average  cost  of  han- 
dling traffic  was  0.346  cent  per  ton-mile  for  operating 
expenses  and  0.173  for  interest  on  the  capital  invest- 
ment, and  that,  therefore,  the  Railway  Department 
could  not  take  any  traffic  at  rates  under  0.346  cent. 
This  argument  is  so  erroneous  that  it  is  obviously 
insincere.  It  is  the  last  refuge  of  a  body  of  men  who 
are  estopped  from  charging  what  the  traffic  will  bear. 


122  RAILWAY    RATES 

The  Railway  Department  of  autocratic  Prussia, 
the  administrative  officers  of  republican  France  and 
the  government  railway  officials  of  socialistic  Aus- 
tralasia, all  are  agreed  that  the  public  regulation  of 
railway  rates  —  be  it  through  State  ownership  or 
through  legislation  and  administration  —  means  hard 
and  fast  railway  rates  which  embody  a  system  that 
admits  of  little  discretion  or  appearance  of  discretion. 
All  are  agreed  that  the  conflicts  of  sectional,  trade 
and  class  interests,  precipitated  by  the  modern  com- 
petition for  the  market,  are  so  fierce  that  no  govern- 
ment, and  no  body  of  public  officials,  can  step  in  to 
regulate  them,  unless  that  government,  or  those  offi- 
cials, can  get  behind  the  stone  wall  of  a  hard  and  fast 
system  and  reply  to  all  complainants:  "Gentlemen, 
you  are  complaining  of  rates  that  are  the  machine 
product  of  a  system  established  by  law,  a  system  that 
knows  no  discretion." 


CHAPTER  V 

FRANCE 

Turning  from  our  examination  of  Germany,  with 
State  ownership  and  management  of  railways  *  to 
a  brief  survey  of  France,  with  rigorous  State  regula- 
tion of  the  rates  of  private  railways,  we  find  much 
the  same  general  conditions  —  the  same  lack  of 
full  development  of  the  resources  of  the  country, 
the  same  abnormal  dependence  upon  waterways 
and  the  same  unhappy  interference  of  "politics" 
in  the  business  of  transportation. 

In  France,  when  a  railway  company  wishes  to 
lower  or  to  raise  a  rate,  it  must  make  application 
to  the  Minister  of  Railways.  The  Minister  trans- 
mits a  copy  of  the  application  to  the  prefect  of  the 
Department  in  which  the  railway  is  located,  and  the 
latter,  in  turn,  notifies  the  local  chambers  of  com- 
merce, who  have  one  month  in  which  to  file  a  reply. 
Upon  the  strength  of  the  evidence  submitted  by  the 
railway,  the  local  chambers  of  commerce  and  the 

*  Our  survey  of  Germany  has  been  confined  to  Prussia,  the  most  im- 
portant of  the  German  States.  The  South  German  States  —  Bavaria,  Wuer- 
temberg  and  Baden  —  also  have  government  ownership  ;  but,  making 
allowance  for  industrial  and  geographical  differences,  to  tell  their  story 
would  be  only  to  repeat  that  of  Prussia. 

123 


124  RAILWAY  RATES 

prefects,  the  Railway  Advisory  Council  reports  to 
the  Minister  of  Railways,  who  grants  or  denies  the 
application  made  by  the  railway  company. 

Requests  from  companies  having  circuitous  lines 
for  permission  to  reduce  rates  for  the  purpose  of  com- 
peting with  companies  having  direct  lines  the  Ministry 
generally  rejects.  The  Government  thereby  greatly 
restricts  the  competition  between  rival  producing 
and  distributing  centres  for  common  markets,  which 
is  everywhere  by  far  the  most  powerful  force  making 
for  the  reduction  of  railway  charges.  Before  the 
State  had  assumed  the  rigorous  control  over  rates 
that  it  now  exercises,  companies  having  circuitous 
routes  commonly  competed  with  companies  having 
direct  routes  by  means  of  reduced  rates. 

In  France,  as  in  Germany,  what  Bentham  called 
"sinister  interests"  have  become  a  powerful  factor 
in  arresting  the  decline  of  railway  rates  and  in  gen- 
erally preventing  the  railways  from  being  conducted 
on  business  principles.  Some  years  ago,  for  exam- 
ple, the  representation  of  the  railways  in  the  Railway 
Advisory  Council  was  diminished  in  consequence 
of  the  popular  fear  of  the  railway  manager.  At  the 
same  time,  the  owners  of  the  canal  boats  and  the 
river  steamers,  who  were  being  pressed  by  the  rail- 
ways, succeeded  in  increasing  their  representation 
upon  the  Advisory  Council.  The  latter  body,  under 
the  influence  of  the  canal  and  river  interests,  there- 
upon developed  the  extraordinary  policy  of  refusing 


FRANCE  125 

to  grant  any  request  of  the  railways  for  permission 
to  reduce  rates,  unless  the  proposed  rate  was  at  least 
20  per  cent  above  the  rate  in  force  on  the  compet- 
ing waterways.  This  policy  has  since  acquired  prac- 
tically the  force  of  law.* 

In  France  the  scheme  of  tapering  rates  is  carried 
much  farther  than  in  Germany;  and  there  are,  in 
addition,  many  special  rates  made  to  meet  the 
Government  Con-  needs  of  trade  and  industry.  The 
troi  results  in  In-  railway  rates  of  France,  neverthe- 
eiastic  Rates  j^^^^  jjj^^  ^j^^^^  ^^  Germany,  are  far 

too  inelastic  to  meet  the  needs  of  commerce.  If  this 
fact  does  not  appear  on  the  surface,  it  is  because  the 
waterways  have  afforded  a  partial  relief  and  because 
the  international  trade  of  France  has  been  for  years 
past  practically  stationary.  Then  again,  a  large 
part  of  the  exports  of  France,  being  luxuries,  hold 
their  own  in  the  international  market  because  of 
the  taste  and  style  embodied  in  them,  not  because 
of  their  comparative  cheapness.  In  the  export  of 
ordinary  silks  and  woollens,  where  cheapness  does 
count,  France  is  steadily  losing  ground. 

In  France  as  in  Germany,  again,  the  general  level 
of  prices  has  fallen  more  rapidly  than  railway  charges 
have  declined ;  and,  judged  by  American  standards, 

*  Dictionnaire  du  Commerce  :  Navigation  Inierieure  ;  M.  Ives  Guyot, 
late  Minister  of  Public  Works,  M.  G.  Michel  and  M.  P.  Leroy-Beaulieu, 
in  current  issues  of  L '' Economiste  Fran^ais  ;  M.  V.  De  Lespinats,  ancien 
mattre  de  forges,  in  Protestation  contre  furgence  et  le  classement  du  Canal 
de  la  Meuse  a  Longwy  et  a  I'Escaut ;  and  M.  Ives  Guyot  :  Les  votes  navi- 
gables  et  le  programme  Baudin. 


126 


RAILWAY   RATES 


the  railways  have  done  comparatively  little  toward 
enabling  trade  and  industry  to  adjust  themselves  to 
the  falling  prices.*  This  inelasticity  of  railway 
rates,  with  the  comparative  inability  of  the  railways 
to  aid  in  making  adjustment  to  new  conditions, 
showed  itself  especially  in  1883-86,  when  French 
trade  and  industry  were  suffering  from  the  effects  of 
the  financial  crisis  of  1883  and  the  French  wine  in- 
dustry was  being  laid  low  by  the  ravages  of  the 
phylloxera.  In  this  critical  period  the  railways  were 
not  given  a  free  hand  to  adjust  their  rates  to  the 
new  conditions,  and  consequently  large  quantities  of 
long-distance  and  low- value  traffic,  unable  to  con- 
tinue to  pay  the  charges  they  had  paid  in  prosperity, 
went  to  the  w^aterways  to  find  the  relief  that  the  rail- 
ways could  not  give.  To  such  an  extent  did  this 
movement  take  place,  that  the  average  receipts  per 

*  A.  W.  Flux :  Price  Movements  in  the  Foreign  Trade  of  France,  in 
Journal  of  Royal  Statistical  Society,  September,  1900;  and  C.  Colson: 
Transports  et  Tarifs. 

Level  of  Prices 


Imports 

Exports 

100 

100 

93 

97 

86 

89 

81 

88 

85 

92 

71 

81 

Average  Receipts 
PER  Ton-mile 


1879-81 
1879-83 
1879-86 
1879-87 
1879-90 
1879-97 


100 

97 

100 

98 

92 

85 


M.  Colson  states  that  in  the  fifteen  years  ending  with  1896  the  average 
receipts  per  ton-mile  upon  the  waterways  fell  from  7  mills  to  8.3  mills,  to 
3.5  mills  to  4.2  mills. 


FRANCE  127 

ton-mile  upon  the  French  railways  actually  rose  from 
1.587  cents  in  1883  to  1.645  cents  in  1886.  In  the 
period  from  1881  to  1886  the  freight  traffic  of  the 
railways  fell  off  13  per  cent,  whereas  the  traffic  upon 
the  waterways  increased  6  per  cent.* 

Since  1881  the  waterways  have  been  gaining  stead- 
ily upon  the  railways,  having  increased  their  propor- 
tion of  the  total  traffic  from  16.8  per  cent  in  1881  to 
24.1  per  cent  in  1897.     In  1898  the 

Waterways  min       a        •,        c  t.     ccl  i-u  •^ 

„  ■,  density  of  trainc  on  the  railways  was 

on  Railways  ■'  ^  ^  ■' 

397,000  ton-miles  per  mile  ;f  upon  the 
waterways  it  was  373,000  ton-miles  per  mile.  J  The 
total  length  of  navigable  waterways  was  7700  miles; 
and  but  a  little  less  than  half  of  this  (3750  miles) 
carried  95  per  cent  of  the  total  waterway  traffic,  with 
a  traffic  density  of  729,000  ton-miles  per  mile.§  This 
was  a  density  of  traffic  about  double  that  of  the  aver- 
age French  railway  system,  and  equal  to  that  of  the 
Railway  du  Nord,  which  has  a  much  heavier  traffic 

*  C.  Colson :    Transports  et  Tarifs, 

f  Railway  mileage,  27,500  miles. 

X  Album  de  Statistique  Graphique  de  i8gy-gg. 

Composition  of  the  Traffic  upon  the  Waterways 

Per  Cent 
Building  materials  .         ......         32.9 

Coal  and  coke 28.3 

Manures  ........  5.4 

Grains  and  provisions      ......         13.7 

Lumber  and  wood  .......  7.0 

Miscellaneous  ........         12.7 

100. 

§  Album  de  Statistique  Graphique  de  i8gy-gg  ;  and  C.  Colson :  Trans- 
ports et  Tarifs. 


128  RAILWAY   RATES 

than  any  other  railway  in  the  country  *  This  ex- 
traordinary density  of  traffic  was  obtained  on  a  sys- 
tem of  waterways  upon  which  the  typical  vessel  is 
the  Flemish  pinnace,  a  four-cornered  canal  boat  of 
a  capacity  of  300  tons,  drawing  71  inches  of  water, 
towed  by  horses  and  making,  on  an  average,  five 
round  trips  a  year.f 

Upon  the  canals  of  the  north  and  east  of  France, 
where  the  traffic  is  very  heavy,  coal,  coke,  ores,  pig 
iron  and  building  materials  are  carried  for  3.3  mills 
per  ton-mile  to  4.15  mills  per  ton-mile.  On  long 
hauls  —  250  to  500  miles  —  the  freight  charges  on 
ores  fall  to  2.5  mills  and  2.2  mills;  and  to  avoid 
making  the  return  journey  empty  canal  boats  will 
take  long-distance  freight  at  1.94  mills  per  ton-mile.  J 
Upon  the  Seine,  between  Paris  and  Rouen,  the 
charges  on  up-stream  freight  vary  from  2.8  mills  to 
5  mills,  while  those  on  down-stream  freight  vary 
from  2.2  to  3.6  mills.  Upon  the  Rhone,  on  the  other 
hand,  where  the  current  is  swift  and  full  of  eddies, 
freight  charges  do  not  fall  below  7  mills,  while  they 
may  rise  to  1.7  cents  per  ton-mile. 

In  disputing  the  relative  merits  of  waterways  and 
railways,  French  Ministers  and  legislators  content 
themselves  with  citing  the  foregoing  figures.     They 


*  Length,  2330  miles. 

t  Ives  Guyot  :  Les  votes  navigahles  et  le  programme  Baudin. 

X  C.  Colson  :  Transports  et  Tarifs ;  and  V.  De  Lespinats  :  Protesta- 
tion contre  Vurgence  et  le  classement  du  Canal  de  la  Meuse  a  Longwy  et  a 
VEscaut. 


FRANCE  129 

overlook  the  fact  that  the  cost  of  maintaining  the 
canals — borne  by  the  taxpayer — amounts  to  1.16 
River  and  Canal  i^il^s  per  ton-milc  of  freight  carried, 
Traffic  burden  the  and  that  the  cost  of  maintaining  the 
Taxpayer  rivcrs  is  1. 58  mills  per  ton-mile  of 

freight  carried.  They  also  ignore  the  fact  that 
the  interest  on  the  capital  invested  in  canals  and 
in  river  improvements  amounts  to  3  mills  per  ton- 
mile  of  freight  carried  upon  the  waterways.*  When 
the  cost  of  maintaining  the  waterways,  together  with 
the  interest  on  the  capital  invested  in  the  waterways, 
is  added  to  the  charges  collected  by  the  owners  of  the 
river  boats  and  canal  boats,  the  lowest  charge  for  the 
carriage  of  freight  by  water  in  France  is  raised  from 
1.94  mills  to  6.10  mills  per  ton-mile.  If  the  cost  of 
maintenance  alone  is  added  to  the  direct  transporta- 
tion charge,  the  lowest  total  charge  for  the  carriage  of 
freight  upon  the  waterways  is  3.10  mills  per  ton-mile, 
which  is  but  little  below  the  lowest  rate  in  force  upon 
the  French  railways,  namely,  3.5  mills. 

In  1900,  the  average  receipts  per  ton-mile  of  freight 
carried  by  the  railways  ranged  from  1.12  cents  upon 
the  Railway  du  Nord  to  i  .45  cents  upon  the  Railway 
de  r Quest.  The  rates  on  iron  and  steel  castings 
vary  from  7  mills  per  ton-mile  to  i.ii  cents;  and  the 
rates  on  ores  go  down  to  3.5  and  4.6  mills. 

The  foregoing  rates  are  made  by  railways  employ- 
ing freight  cars  with  a  capacity  of  10  tons,  loaded  on 

*  F.  Schumacher,  in  Archiv  fuer  Eisenbahnwesen,  1899,  Heft  3. 


130  RAILWAY   RATES 

an  average  to  3  tons,  attaining  a  maximum  train- 
load  of  600  tons  and  an  average  train-load  that 
varies  from  65  tons  for  the  Railway  de  1' Quest  to 
150  tons  for  the  Railway  Paris-Lyon-Mediterranee. 

M.  de  Lespinats,  a  well-known  manufacturer  of 
steel  and  iron,  in  a  report  to  the  Chamber  of  Com- 
merce of  Nancy*  recently  analyzed  the  accounts 
of  the  Railway  de  I'Est,  and  showed  that  this  road 
could  haul  freight  in  300-ton  train-loads  at  a  cost  of 
2.48  mills  per  ton-mile,  and  in  500-ton  train-loads 
and  20-ton  cars  at  a  cost  of  1.55  mills.  M.  de 
Lespinats  assumed  that  the  freight  in  question 
would  pay  its  share  of  the  sum  total  of  the  oper- 
ating expenses  of  the  railway,  and  would  in  addi- 
tion pay  interest  and  sinking  fund  charges  upon 
the  rolling  stock  employed.  Adding  such  charges 
to  the  costs  as  given  above,  he  was  of  the  opinion 
that  the  French  railways  were  able  to  carry,  and 
ought  to  carry,  bulky  and  low-value  freight,  deliv- 
ered in  300-ton  lots,  at  the  rate  of  4.2  to  4.8  mills  per 
ton-mile  for  the  first  125  miles,  and  at  2.8  mills  to 
3.3  mills  for  every  mile  over  125  miles.  These  rates, 
he  held,  were  necessary  to  satisfy  the  needs  of  agri- 
culture and  industry;  and,  moreover,  they  were 
lower  than  the  rates  upon  the  canals  projected  by 
the  Government,  upon  which  it  was  proposed  to 
charge  a  toll  of  1.7  mills  per  ton-mile  on  building 
materials,  coal  and  ores,  and  a  toll  of  2.2  mills  on 

*  Protestation  contre  Vurgence  et  le  classement  du  Canal  de  la  Menu. 


FRANCE  131 

steel  and  iron.  M.  de  Lespinats  concluded  with 
the  statement  that  it  was  obviously  out  of  the  ques- 
tion for  the  State  to  approve  the  rates  he  had  sug- 
gested, unless  it  should  decide  to  break  with  its  past 
policy  of  insisting  that  the  railway  rates  be  kept  at 
least  20  per  cent  above  the  rates  on  competing  water- 
ways. 

The  Government  shortly  afterward  carried  its  pro- 
posal to  spend  some  500,000,000  francs  on  building 
additional  canals,  which  were  to  be  navigated  by 
300-ton  vessels  paying  tolls  of  1.7  mills  and  2.2  mills 
per  ton-mile  of  freight  carried.  While  these  propo- 
sals were  still  before  the  Chamber  of  Deputies,  M. 
Jozon,  Director  of  Navigation,  protested  before  the 
Railway  Advisory  Council  against  certain  requests 
of  the  railways  to  be  allowed  to  lower  their  rates. 
M.  Jozon  said  that  the  Government's  canal  scheme 
was  based  on  the  supposition  that  the  freight  to  be 
carried  on  the  proposed  canals  would  be  able  to  pay 
certain  tolls.  If  the  railways  should  be  allowed  to 
lower  rates,  the  Government's  calculations  would 
be  upset.* 

The  territory  north  of  the  Seine  and  the  Marne 
rivers  is  the  seat  of  the  steel  and  iron  and  cotton  and 
wool  spinning  industries.  It  is,  in  fact,  the  great 
manufacturing  region  of  France.  At  present  the 
railways  serving  this  region,  the  Railway  du  Nord 
and  the  Railway  de  I'Est,  carry  less  than  one-half 

*  Ives  Guyot:  Les  votes  navigables  et  le  programme  Baudin. 


132  RAILWAY   RATES 

of  the  traffic.  ,  Were  they  allowed  to  drive  out  of  the 
field  the  300-ton  canal  boats,  they  could  much  more 
than  double  their  present  traffic,  for  new  facilities 
create  new  business.  With  such  an  increase  in  the 
volume  of  traffic,  it  would  be  possible  for  them,  with- 
out further  economies,  to  lower  enormously  their 
average  receipts,  which  are,  respectively,  1.2  cents 
and  1.28  cents  per  ton-mile  of  freight  carried.  Any 
such  increase  in  the  volume  of  traffic  would,  more- 
over, justify  these  roads  in  bringing  their  property 
up  to  something  like  American  standards  of  tech- 
nical efficiency ;  and  that  increased  efficiency,  in  turn, 
would  ultimately  lower  the  general  level  of  charges 
to  a  point  such  as  has  never  been,  and  never  can 
be,  enjoyed  by  French  industry  on  a  300-ton  canal- 
boat  basis.  Finally,  freedom  for  these  roads  to  make 
rates  in  competition  with  the  waterways  would  cause 
a  general  level  of  low  railway  rates  to  be  diffused  over 
the  whole  country,  and  would  do  away  with  the  ex- 
traordinary discrimination  which  now  exists  in  France 
in  favor  of  districts  supplied  with  waterways  and 
against  those  supplied  with  railways  alone.* 

♦  C.  Colson ;   Transports  el  Tarifs. 


CHAPTER  VI 

AUSTRIA-HUNGARY  AND   THE   DANUBIAN   PROVINCES 

In  the  period  from  i860  to  1880,  the  merchants  of 
Stettin,  at  the  mouth  of  the  Oder,  exported  to  Eng- 
land large  quantities  of  grain  drawn  from  Bohemia, 
Moravia,  Galicia,  Hungary,  Rumania  and  even 
from  the  territory  lying  to  the  north  of  Odessa,  in 
Russia.  In  1867,  for  example,  the  Board  of  Trade 
of  Stettin  publicly  thanked  the  Austrian  and  Gali- 
cian  railways  for  the  intelligent  and  energetic  sup- 
port extended  to  the  merchants  of  Stettin,  who  were 
endeavoring  to  expand  their  operations  in  eastern 
Europe.  As  late  as  1877  Stettin  exported  to  Eng- 
land some  25,000  tons  of  Rumanian  wheat.  But  in 
the  four  years  ending  with  1901,  the  railways  carried 
into  Stettin  from  Russia,  Rumania,  Galicia,  Hungary, 
Bohemia  and  Austria  no  wheat,  no  rye  and  only  486 
tons  of  Indian  corn. 

This  complete  destruction  of  Stettin's  export  trade 
in  grain  raised  in  eastern  Europe  affords  a  dramatic 
illustration  of  the  destructive  effect  upon  commerce 
of  the  refusal  of  the  State  railway  systems  of  the  sev- 
eral European  countries  to  cooperate  with  one  another 

133 


134  RAILWAY   RATES 

for  the  purpose  of  making  such  through  rates  on 
freight  as  would  promote  the  free  exchange  of  goods. 
On  the  other  hand,  this  refusal  of  the  several  Euro- 
pean State  railway  systems  to  cooperate  with  one 
another  is  one  of  the  most  characteristic  outcomes 
of  the  State  ownership  and  the  State  management  of 
the  railways.  It  seems  to  be  impossible  for  a  State 
that  is  engaged  in  fostering  industries  by  means  of 
protection  to  refrain  from  regulating  the  railway 
rates  with  a  view  to  supplementing  the  protective 
tariff.  It  is  not  a  mere  coincidence  that  Great  Brit- 
ain, the  great  exponent  of  free  trade,  should  be  the 
only  country  of  Europe  that  has  steadfastly  refused 
to  regulate  railway  rates  with  a  view  to  checking 
imports. 

In  1879  Prussia  entered  upon  the  policy  of  State 
ownership,  and  in  1880  the  Prussian  Government 
broke  off  the  arrangements  under  which  the  railways 
Prussia  refuses  to  ^^  Prussia  had  coopcratcd  with  those 
promote  Tratis-  of  Austria  and  Hungary,  for  the  pur- 
contituntai Traffic  p^gg  ^f  making  such  ratcs  as  would 

enable  the  grain  of  the  Danubian  countries  to  go 
to  England  by  rail  and  sea,  by  way  of  Stettin  and 
Hamburg.  The  Austro-Hungarian  railways  tried 
to  save  themselves  by  transferring  the  grain  of  east- 
ern Europe  to  the  Elbe  at  Laube-Tetschen  and  Aus- 
sig,  the  head  of  navigation  on  the  Elbe  for  vessels 
carrying  average  loads  of  300  to  400  tons.  But  the 
competition  of  the  American  grain  in  Liverpool  soon 


AUSTRIA-HUNGARY  AND  DANUBIAN  PROVINCES    135 

became  so  keen  that  the  grain  of  eastern  Europe  be- 
came unable  to  bear  the  burden  of  the  transfer  from 
rail  to  river  and  of  the  relatively  high  charge  made 
for  the  carriage  by  rail  from  the  Danubian  countries 
to  the  head  of  navigation  on  the  Elbe.  This  charge 
for  the  haul  by  rail  became  relatively  higher  each 
year ;  for,  as  will  appear  shortly,  the  check  upon  the 
development  of  traffic  resulting  from  State  owner- 
ship and  State  regulation  prevented  the  Austro-Hun- 
garian  railways  from  developing  enough  traffic  to 
justify  railways  of  the  American  type  and  of  American 
efficiency.  The  railway  charges  on  the  grain  of  east- 
ern Europe  destined  for  England  by  way  of  the 
Elbe  remained,  therefore,  comparatively  stationary; 
whereas  those  on  American  grain  destined  for  Eng- 
land declined  very  rapidly,  with  the  result  that  the 
grain  of  eastern  Europe  had  to  find  a  new  outlet  to 
England  and  western  Europe.  It  turned  eastward, 
sought  the  Black  Sea  by  way  of  the  Danube,  and  then 
went  by  way  of  the  Mediterranean  Sea  and  the 
Atlantic  Ocean  to  England,  Belgium,  Holland  and 
Germany.  At  present  the  grain  of  western  Rumania 
goes  by  rail  to  the  Danube,  thence  by  river  to  the 
Black  Sea,  thence  in  vessels  of  looo  to  3500  tons' 
capacity  to  Rotterdam  or  Hamburg,  from  which 
places  it  goes  by  river  to  Mannheim  on  the  Rhine 
or  to  Magdeburg  and  Dresden  on  the  Elbe. 

Grain,  beef,  pork,  dairy  products,  fruits,  vegetables 
and  timber  are  the  staple  products  of  the  Danubian 


136  RAILWAY   RATES 

countries.  But  all  of  these  compete  with  the  prod- 
ucts of  the  soil  owned  and  tilled  by  the  landed  aris- 
tocracy of  Prussia,  which  dictates  the  policy  of  the 
Prussian  Government.  Therefore,  the  Prussian 
Railway  Department  has  thus  far  steadily  refused 
to  cooperate  with  the  Austro-Hungarian  railways  for 
the  purpose  of  promoting  the  importation  into  Ger- 
many and  western  Europe  of  the  staple  products  of 
eastern  Europe. 

The  Austrian  State  railways  have  been  com- 
paratively moderate  in  the  practice  of  discriminat- 
ing against  imports  from  Germany,  by  making  a 
Austnaji  Practice  higher  charge  for  the  carriage  of  im- 
liberaiizedby  ^^.^^^  articles  than  for  the  carriage 

Competition  of  . 

Private  Com-  01  articles  of  domestic  manufacture. 
panies  This  is  duc  mainly  to  the  fact  that 

about  42  per  cent  of  the  Austrian  railways  are  still 
operated  by  companies,  which,  of  course,  take  busi- 
ness wherever  they  can  get  it  and  ask  no  questions 
as  to  whether  that  business  is  of  domestic  or  of 
foreign  origin.  And  the  competition  from  the  com- 
panies forces  the  State,  under  penalty  of  losing 
traffic,  to  adopt  a  more  liberal  policy  than  it  would 
otherwise  pursue.  It  is,  however,  becoming  in- 
creasingly difficult  for  the  State  to  adhere  to  its 
somewhat  liberal  practices,  partly  because  the  prac- 
tices of  the  Prussian  Railway  Department  are  be- 
coming more  and  more  irritating,  thus  arousing  the 
Austrians  to  demand  retaliatory  measures,  and  partly 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    137 

because  of  the  tremendous  wave  of  protectionist  sen- 
timent that  is  sweeping  over  all  Europe. 

In  Hungary  the  State  owns  or  operates  82  per  cent 
of  the  railways,  and  it  pursues  with  great  energy 
the  policy  of  regulating  railway  rates  in  such  manner 
Hungary  makes  ^s  to  force  exports  and  to  check  im- 
Raiiway  Rates  a  ports.  In  fact,  the  Hungarian  Gov- 
Tariff  Barrier  ernment  has  done  on  a  large  scale 
what  so  many  of  our  own  State  Railroad  Commis- 
sions would  love  to  do  and  have  done  on  a  petty  scale. 
The  Hungarian  Railway  Department  has,  in  effect, 
established  a  customs  barrier  against  Austria,  by  mak- 
ing heavy  discriminations  in  favor  of  Hungarian  man- 
ufactures and  against  Austrian  manufactures.  And 
at  times,  when  the  relations  between  Austria  and  Hun- 
gary have  been  more  than  usually  strained,  German 
manufactures  imported  into  Hungary  have  enjoyed 
more  favorable  rates  than  Austrian  manufactures. 

Early  in  the  eighties,  Germany  adopted  stringent 
measures  against  the  importation  of  cattle  and  hogs 
from  Austria-Hungary,  reducing  the  imports  of  cat- 
tle from  38,000,000  florins  in  1877  to  4,000,000  in 
1 88 1.  Germany  professed  that  it  desired  merely  to 
protect  itself  against  the  importation,  by  way  of 
Austria-Hungary,  of  epidemic  diseases  from  Ru- 
mania and  southwestern  Russia;  but  as  a  matter 
of  fact,  Germany  was  guided  largely  by  the  desire 
to  protect  its  cattle  and  hog  interests.  Austria- 
Hungary  followed   by  prohibiting  the  importation 


138  RAILWAY   RATES 

of  cattle  and  hogs  from  Rumania,  at  first  in  the  hope 
that  Germany  would  remove  the  restrictions  upon 
imports  from  Austria-Hungary,  and  later  from  a  de- 
sire to  protect  the  cattle  and  hog  interests  of  Hungary 
against  competition  from  Rumania.  Under  this  pro- 
hibition the  Rumanian  exports  of  cattle  and  hogs 
fell  from  20,000,000  francs  in  1879  to  2,000,000  in 
1889.  In  fact,  the  cattle  industry  of  Rumania  was 
ruined  by  the  action  of  Austria-Hungary.  By  way 
of  retaliation,  Rumania  raised  the  duties  upon  arti- 
cles imported  from  Austria-Hungary,  and  thus 
reduced  the  proportion  borne  by  the  imports  from 
Austria-Hungary  into  Rumania  to  the  total  imports 
into  Rumania  from  48.5  per  cent  in  the  period  from 
1876  to  1885  to  1 7. 1  per  cent  in  1887  and  14.5  per 
cent  in  1890.  Retaliatory  measures  taken  by  Aus- 
tria-Hungary, in  turn,  reduced  the  proportion  borne 
by  Rumania's  exports  to  Austria-Hungary  to  the 
total  of  Rumania's  exports  from  35  per  cent  in  the 
years  1876-85  to  8  per  cent  in  1887,  and  3.25  per 
cent  in  1890. 

The  trade  with  Rumania  which  Austria-Hungary 
lost  fell  to  Great  Britain  and  to  Germany.  That 
meant  that  the  tariJ0F  war  between  ^Austria-Hungary 
and  Rumania  deprived  the  railways  connecting  those 
countries  of  great  volumes  of  traffic.  Great  Britain 
trades  with  Rumania  exclusively  by  way  of  the 
Mediterranean,  the  Black  Sea  and  the  Danube,  and 
Germany  does  so  in  the  main. 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    139 

In  the  later  eighties,  Germany  made  great  efforts 
to  reach  the  markets  on  the  Danube  and  in  the 
Balkan  peninsula  by  way  of  the  overland  railways. 
Vain  Efforts  of  ^^^  ^^^  efforts  were  defeated  by 
Germany  to  reach  Hungary,  which  refused  to  make  con- 
Eastern  Markets  cessions  in  rates  on  any  German 
■^    ^^  manufactures  that  competed  with  the 

products  of  the  infant  industries  that  Hungary  was 
fostering.  Germany  then  turned  to  the  Danube  and 
sought  to  get  concessions  from  the  steamship  com- 
panies running  from.  Passau,  in  Bavaria,  and  from 
Vienna  to  the  mouth  of  the  Danube.  But  here 
again  it  was  checkmated  by  the  Hungarian  states- 
men, who  had  various  means  of  intimidating  the 
Austrian  steamship  companies.  One  of  them  was 
the  toll  charged  upon  freight  passing  through  the 
canal  at  the  Iron  Gate.  Another  means  was  the 
relation  existing  between  the  Austrian  Government 
and  the  leading  steamship  company  on  the  Danube, 
by  reason  of  the  subsidy  paid  the  latter  by  the 
Austrian  Government.  The  Hungarian  statesmen 
gave  the  Austrian  Government  to  understand  that 
it  could  promote  friendly  relations  between  Austria 
and  Hungary  by  intimating  to  its  protege,  the  Dan- 
ube Steamship  Company,  that  it  must  not  go  too 
far  in  promoting  German  trade  with  the  Danubian 
countries  and  the  Balkan  peninsula. 

In  due  time  Germany  realized  the  hopelessness 
of  its  efforts  to  develop  a  transcontinental  traffic  by 


140  RAILWAY   RATES 

rail;  and,  in  1890,  it  established  the  so-called  "Le- 
vant tariffs."  From  all  parts  of  Germany  low  rail- 
way rates  are  made  to  Hamburg  and  Rotterdam  on 
goods  destined  for  eastern  Europe  by  steamer.  From 
the  Levant  ports  the  goods  are  sent  inland  by  rail  or 
by  river. 

In  1869  Baron  Hirsch,  the  Vienna  financier,  ob- 
tained franchises  for  the  "Societe  Imperiale  des  che- 
mins  de  fer  Ottomans,"  which  was  to  open  up  the 
interior  of  the  Balkan  peninsula  from  the  ports  of 
Constantinople  and  Saloniki,  and  was  to  connect 
those  cities  with  the  railways  of  western  Europe. 
Immediately  British  and  Austrian  diplomacy  set 
to  work  in  secret  to  defeat  the  scheme  to  connect 
western  Europe  by  rail  with  Constantinople.  Great 
Britain  and  Austria  were  averse  to  having  Germany 
and  Belgium  obtain  an  outlet  by  rail  to  the  Levant 
for  their  manufactures.  Not  until  1888  was  the 
through  line,  Vienna-Saloniki-Constantinople,  opened 
to  traffic.  As  late  as  1892  we  find  Austrian  publi- 
cists who  aspired  to  show  Austria  the  way  to  com- 
mercial and  industrial  greatness  deploring  the  fact 
that  Austrian  capital  and  Austrian  brains  should 
have  been  put  to  the  base  purpose  of  promoting 
German  trade  with  the  Balkan  peninsula. 

For  a  number  of  years  the  Turkish  Government 
refused  to  give  Servia  access  to  the  -^gean  Sea  by 
way  of  Saloniki,  by  refusing  to  connect  the  Turkish 
railway  running  northwestward  from  Saloniki  with 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    141 

the  Servian  railway  running  from  Nish  to  Vranje. 
When  the  connection  was  finally  made,  in  1888,  the 
German  Government  immediately  appointed  to  the 
office  of  consul  at  Nish  a  man  thoroughly  familiar 
with  the  trade  routes  to  the  East,  who  was  to  watch 
that  England  and  France  should  get  no  better  rates 
into  Servia  by  way  of  Saloniki  than  Germany  could 
get  by  way  of  rail  to  the  Danube,  thence  by  way  of 
the  Danube  to  Belgrade,  and  thence  by  rail  into  the 
interior  of  Servia.  The  Servian  Government  is,  how- 
ever, disinclined  to  cooperate  with  Germany  in  letting 
the  overland  rail  and  river  route  hold  its  own  against 
the  ocean  and  rail  route ;  and  the  trade  that  formerly 
went  to  Servia  by  way  of  the  Danube  is  shifting  to 
the  ocean  route.  The  advantage  of  the  latter  route 
the  French  consul  at  Belgrade,  M.  Millet,  set  forth  in 
telling  manner  in  1889.  He  said  that  the  French 
merchant  who  shipped  into  Servia  by  way  of  Saloniki 
had  to  secure  the  cooperation  only  of  the  French  rail- 
ways, the  ocean  steamers  and  the  Servian  railways. 
But  the  French  merchant  who  shipped  into  Servia 
by  the  overland  route  had  to  secure  the  cooperation 
of  some  twenty  different  transportation  agencies, 
each  one  of  which  was  acting  constantly  on  the  sup- 
position that  its  interests  were  in  conflict  with  the 
interests  of  all  the  others. 

When  the  first  steps  were  taken  to  connect  by  rail 
the  industrial  centres  of  western  Europe  and  the  agri- 
cultural  regions   of    southeastern    Europe,    it    was 


142  RAILWAY  RATES 

predicted  in  countless  speeches  and  articles  in  all  the 
languages  of  Europe  that  a  great  transcontinental 

Nationaljeal-  ^^^^^  ^^^^^    ^P^^^S  ^P'  consisting  of 

ousies  prevent        manufactured    commodities    moving 
Railway  Traffic     eastward  and  of  raw  materials  and 

with  the  East  rj-rc  •  i.jT)i. 

food-stuffs  movmg  westward.  But 
those  predictions  have  come  to  naught.  The  reason 
is  that  for  decades  past  each  one  of  the  countries  con- 
cerned has  been  fighting  every  other  one,  on  the  sup- 
position that  its  interests  conflicted  with  the  interests 
of  every  other  one  of  the  countries.  Nowhere  has 
there  appeared  the  slightest  tendency  to  unite  into  an 
economic  unit  the  industrial  West  and  the  agricul- 
tural East.  The  result  has  been  the  practical  failure 
to  develop  through  traffic  between  the  East  and  the 
West.  What  should  be  a  transcontinental  railway 
is  simply  a  number  of  local  railways,  which  are  physi- 
cally connected,  but  exchange  with  one  another 
comparatively  little  long-distance  or  through  traffic. 
Each  local  link  has  its  local  traffic,  and  little  more. 
On  the  other  hand,  the  efficient,  modern  railway, 
which  hauls  freight  in  train-loads  rising  to  3000  tons, 
can  exist  only  where  there  are  enormous  quantities 
of  freight  moving  over  long  distances.  The  failure 
to  develop  traffic  of  that  kind  to  be  moved  by  rail 
between  western  and  eastern  Europe  is  the  reason 
why  the  railways  of  Austria-Hungary  and  of  the 
Danubian  countries,  as  well  as  those  of  the  Balkan 
peninsula,   have  remained   technically  where   they 


AUSTRIA-HUNGARY  AND  DANUBIAN  PROVINCES    143 

were  in  1870.  But  the  lo-ton  car  and  the  railway 
with  train-loads  of  200  and  300  tons,  even  when  used 
as  mere  feeders  to  the  waterways,  are  in  1905  no 
longer  efficient  agencies  of  transportation.  They 
no  longer  give  the  agricultural  products  of  eastern 
Europe  a  fair  chance  to  compete  in  western  Europe 
with  the  agricultural  products  of  the  United  States; 
and  this  means  that  eastern  Europe  is  not  developing 
as  fast  as  it  might  develop,  and  that  it  does  not  con- 
sume anything  like  the  amount  of  the  products 
turned  out  by  the  industries  of  western  Europe  that 
it  might  be  made  to  use. 

It  is  true  that  the  peoples  of  the  Balkan  peninsula 
and  of  the  Danubian  provinces,  as  the  result  of  cen- 
turies of  misrule,  still  are  miserably  poor,  suspicious 
of  every  innovation  and  all  but  hopelessly  apathetic. 
But,  over  and  over,  one  thing  has  been  shown — 
that  there  is  a  way  of  overcoming  the  inertia  and  the 
apathy  resulting  from  long-continued  oppression,  and 
that  is  to  give  the  people  in  question  "the  chance  to 
make  a  dollar."  Industry  and  trade  are  the  great 
civilizing  agencies,  and  nothing  promotes  them  so 
effectively  as  do  modern  means  of  transportation. 
The  countries  of  Europe  have,  therefore,  inflicted 
upon  themselves  immeasurable  harm,  by  pursuing 
a  policy  which  has  reduced  their  railways  to  mere 
feeders  to  the  waterways  and  has  prevented  them 
from  becoming  modern  and  efficient  means  of  trans- 
portation. 


144  RAILWAY  RATES 

Rumania,  Bulgaria  and  Servia,  countries  with  a 
population  of  some  12,000,000  and  with  vast  agri- 
cultural resources,  at  one  time  looked  forward  to 
gaining  an  overland  outlet  by  rail  to  western  Europe. 
At  present  they  build  their  railways  entirely  with  the 
view  of  reaching  the  Black  Sea  or  the  JEgea.n  Sea ; 
but  the  Danube  still  remains  the  great  highway  to 
the  Black  Sea,  the  railways  being,  in  the  main,  feeders 
to  that  river.  About  70  per  cent  of  the  exports  and 
imports  of  these  countries  go  out  and  come  in  by  way 
of  the  Black  Sea  ports;  and  about  70  per  cent  of 
that  proportion,  in  turn,  goes  and  comes  by  way  of 
the  Danube,  rather  than  by  way  of  the  railways  lead- 
ing inland  from  the  ports  of  Burgas,  Varna,  Con- 
stanta, Braila  and  Galaz. 

Upon  the  Danube,  in  Rumania,  a  waterway  of  590 
miles,  a  600-  to  700-horse-power  steamer  will  tow 
up-stream,  at  the  rate  of  3  miles  an  hour,  8  barges 
carrying  5200  long  tons  of  paying  freight.  The  pub- 
lished charges  for  merchandise  carried  up-stream 
range  from  0.407  cent  per  short-ton  mile  for  a  distance 
of  200  miles  to  0.349  cent  for  a  distance  of  480  miles. 
For  the  carriage  of  bulky  goods,  delivered  in  barge- 
load  lots,  the  charges  range  from  0.235  cent  per 
short-ton  mile  for  distances  under  350  miles  to  0.176 
cent  for  distances  exceeding  625  miles.  On  grain 
carried  down-stream,  the  published  charges  range 
from  0.115  cent  to  0.173  cent;  and,  at  times,  the 
charges  actually  made  have  fallen  to  0.059  cent  per 


AVSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    145 

ton-mile.  The  lowest  published  rate  is  o.i  cent, 
which  applies  to  building  stone  carried  down-stream. 

The  bulk  of  the  Rumanian  wheat  and  corn  is 
raised  west  of  longitude  25  degrees  30  minutes; 
and  that  part  of  it  which  is  exported  finds  its  prin- 
cipal market  in  the  interior  of  Germany,  going  as 
far  inland  as  Mannheim  on  the  Rhine  and  Magde- 
burg on  the  Elbe.  Turn-Magurele,  which  may  be 
taken  as  the  ''centre  of  gravity"  of  the  Rumanian 
wheat  and  corn  district,  is  1440  miles  from  Magde- 
burg, by  way  of  the  Danube,  the  proposed  Danube- 
Moldau-Elbe  canal  and  the  Elbe.  A  modern 
railway  should  have  no  difficulty  in  carrying  wheat 
and  corn  that  distance  for  0.33  cent  per  gross  ton- 
mile,  or  $4.75  a  gross  ton.  In  the  United  States, 
millions  of  bushels  of  wheat  for  export  have  moved 
to  the  seaboard  at  less  than  0.15  cent  per  short-ton 
mile,  and  probably  the  average  receipts  for  grain 
moving  to  the  Atlantic  seaboard  for  export  are 
nearer  0.2  cent  than  0.3  cent  per  short-ton  mile. 

Grain  raised  in  western  Rumania  and  shipped  to 
Magdeburg  goes  by  rail  to  the  Danube,  thence  an 
average  distance  of  475  miles  by  river  to  the  Black 
Cost  to  the  Ru-  ^^^'  thence  a  distance  of  4365  miles 
manian  Farmer  by  sca  to  Hamburg,  and  thence  185 
of  Deficient  Rail-  miles  by  the  rivcr  Elbe.  The  total 
way   ervtce  charge  for  the  shipment  is  $6.66  a 

long  ton,  or  $0.50  in  excess  of  the  present  cost  (May, 
1903)  of  moving  a  long  ton  of  wheat  or  flour  from 


146  RAILWAY  RATES 

Duluth,  Minn.,  to  Magdeburg  on  the  Elbe.  Could 
the  cost  of  the  three  transshipments  from  railway  car 
to  river  vessel,  from  river  vessel  to  ocean  vessel  and 
from  ocean  vessel  back  to  river  vessel  be  eliminated, 
a  saving  of  $1.30  a  ton  could  be  effected.  Could 
wheat  be  carried  overland  for  from  0.22  cent  to  0.33 
cent  per  long-ton  mile,  the  saving  effected  would  be 
$3.50  to  $1.90  a  ton.  In  1902  those  last  sums  would 
have  represented  respectively  14  per  cent  and  7  per 
cent  of  the  average  price  of  wheat  in  the  western 
Rumanian  Danube  markets.  In  other  words,  had 
the  Rumanian  farmer  in  1902  been  served  by  mod- 
ern railways,  the  wheat  which  he  raised  would  have 
brought  him  upward  of  7  per  cent  to  14  per  cent  more 
than  it  in  fact  brought  him.  That,  in  turn,  would 
have  meant  an  increase  in  the  purchasing  power  of 
the  Rumanian  farmer  and  a  greater  export  of  Ger- 
man manufactures  to  Rumania. 

When  Austria-Hungary  forbade  not  only  the  im- 
port, but  even  the  transit,  of  Rumanian  cattle  and  hogs, 
Rumania  tried  to  help  itself  by  shipping  cattle  and 
hogs  to  western  Europe  by  way  of  the  Black  Sea  and 
the  Mediterranean.  But  the  experiment  failed,  be- 
cause the  animals  lost  too  much  weight  in  the  course 
of  the  voyage.  The  result  was  that  the  export  of 
cattle  fell  from  30,600  head  in  1879  to  8900  head  in 
1900,  and  that  of  hogs  from  153,600  in  1879  to  2300 
in  1900. 

The  loss  of  the  export  market  so  discouraged  the 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    147 

Rumanian  farmer  that  he  discontinued  his  efforts  to 
improve  the  breed  of  his  cattle  and  hogs,  and  that, 
in  turn,  became  one  of  the  main  obstacles  to  the 
building  up  of  an  export  trade  in  slaughtered  cattle 
and  hogs.  A  further  obstacle  was  found  in  the 
refusal  of  the  Prussian  Railway  Department  to 
cooperate  with  Rumanian  packers  of  beef  and  hogs 
in  giving  Rumanian  beef  and  pork  access  to  German 
markets.  In  1899,  for  example,  a  packer  at  Jassy, 
in  northern  Moldavia,  30  hours  by  rail  from  Berlin, 
opened  negotiations  with  the  Prussian  Railway  De- 
partment for  rates  on  meat  from  Jassy  to  Berlin. 
The  packer  was  of  opinion  that  he  would  be  able  to 
market  in  Berlin  30  tons  of  meat  a  day.  But  the 
Prussian  landowners  compelled  the  Railway  Depart- 
ment to  drop  the  negotiations. 

Rumania,  Servia  and  Bulgaria  have  extensive  areas 
of  excellent  grazing  lands,  and  by  soil  and  climate 
these  countries  are  even  better  fitted  for  raising  corn 
than  for  raising  wheat.  The  farmers  of  these  coun- 
tries could  greatly  improve  their  condition,  and  they 
would  become  much  better  customers  of  the  manu- 
facturing countries  of  western  Europe,  particularly 
of  Germany,  were  it  practicable  for  them  to  turn  more 
to  the  raising  of  corn,  cattle  and  hogs  for  the  markets 
of  western  Europe.  But  at  present  they  cannot  imi- 
tate the  example  of  the  farmer  of  the  American  corn 
belt,  and  seek  relief  from  the  falling  price  of  wheat 
by  raising  corn  and  feeding  it  to  cattle  and  hogs. 


148  RAILWAY  RATES 

The  ocean  steamers  have  not  succeeded  in  making 
rates  that  would  force  a  market  in  western  Europe 
for  the  packing-house  products  of  the  Danubian 
countries.  And  the  only  markets  open  to  the  live 
cattle  and  hogs  of  those  countries  are  the  markets 
of  Russia,  a  country  with  no  city  population  to  speak 
of,  as  well  as  a  country  with  an  exceedingly  low 
standard  of  living. 

The  absence  of  efficient  and  modern  transconti- 
nental railway  facilities  is  also  illustrated  in  an  in- 
structive manner  by  the  history  of  the  Carpathian 
Failure  to  develop  Oil  regions  of  Galicia  and  Rumania, 
the  Carpathian  "the  natural  petrolcum  reservoir  of 
Oil  Trade  Europe."     The  product  of  these  oil 

fields  increased  from  153,000  long  tons  in  1893  to 
722,000  tons  in  1901.  The  primary  need  of  the  in- 
dustry is  such  access  to  the  world's  markets  as 
will  enable  the  region  to  dispose  of  oil  enough  to 
justify  production  on  a  large  scale  and  in  accord- 
ance with  modern  methods.  Thus  far  the  railways 
of  Germany  have  failed  to  cooperate  with  the  Car- 
pathian oil  industry  to  give  the  product  of  the  latter 
a  reasonable  access  to  Germany.  As  late  as  1900 
the  Chamber  of  Commerce  of  Posen,  a  river  port 
on  the  Oder,  near  the  Galician  frontier,  stated,  in  a 
memorial  to  the  Prussian  Minister  of  Railways,  that 
one  might  say,  without  exaggerating,  that  the  Gali- 
cian oil  fields  were  farther  from  Germany  than  were 
those  of  the  United  States. 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    149 

Although  the  output  of  the  Carpathian  oil  fields 
increased  from  153,000  tons  in  1893  to  722,000  tons 
in  1 90 1,  the  Carpathian  oil  carried  by  rail  into  Ger- 
many rose  only  from  5000  tons  in  1893  to  10,000  tons 
in  1895,  and  15,000  tons  in  1901. 

In  1898  the  Rumanian  oil  producers  sought  a 
new  outlet  to  Germany  by  shipping  their  oil  by  rail 
to  Giurgevo,  on  the  Danube,  thence  by  river  in  tank 
vessels,  a  distance  of  11 66  miles,  to  Regensburg,  in 
Bavaria,  and  thence  by  rail  into  southern  Germany. 
The  transit  from  Giurgevo  to  Regensburg  takes  42 
days,  and  involves  the  passage  through  the  Iron  Gate 
canal,  for  which  passage  the  Hungarian  Govern- 
ment collects  a  toll,  which,  in  1901,  averaged  38  cents 
a  ton  on  all  the  freight  passing  through.  Neverthe- 
less, the  new  rail  and  river  route  offered  such  advan- 
tages over  the  all-rail  route  that  the  shipments  over 
it  rose  from  2550  tons  in  1898  to  9300  in  1900.  In 
the  following  year,  1 901,  60  per  cent  of  the  oil  shipped 
from  Rumania  into  Germany  took  the  rail  and  river 
route.  Further  evidence  of  the  way  in  which  the 
German  market  will  respond  to  reductions  in  the 
cost  of  transportation  is  found  in  the  fact  that,  while 
the  imports  of  petroleum  into  Bavaria  from  Baku, 
Russia,  by  way  of  the  Black  Sea  and  the  Mediter- 
ranean to  Trieste,  and  thence  inland  by  rail,  remained 
stationary  at  4000  tons  a  year  from  1889  to  1900,  the 
imports  into  Bavaria  from  Rumania  by  way  of  the 
Danube  rose  from  27  tons  in  1897  to  9300  tons  in  1900. 


150  RAILWAY  RATES 

In  Hungary  the  Danube  affords  very  cheap  trans- 
portation for  a  distance  of  500  miles  —  that  is,  from 
Gonyo  (halfway  between  Vienna  and  Budapest)  to 
the  Rumanian  frontier.  In  connection  with  the 
lower  reaches  of  the  Drave,  Save  and  Theiss,  it 
affords  one  of  the  principal  highways,  if  not  the  prin- 
cipal one,  between  southeastern  Hungary  and  Buda- 
pest and  Vienna.  Above  Gonyo  the  current  and 
the  shallowness  of  the  stream  raise  the  cost  of  trans- 
portation to  from  2 1  times  to  4  times  the  cost  of 
transportation  below  Gonyo.  For  that  reason  there 
is  comparatively  little  traffic  upon  the  Danube  above 
Gonyo  and  Vienna. 

In  1900  the  published  charges  for  carrying  grain 
from  Szegedin  down  the  river  Theiss  and  up  the 
Danube  to  Budapest,  a  distance  of  398  miles,  ranged 
from  0.20  cent  per  short-ton  mile  to  0.394  cent,  ac- 
cording to  the  season  of  the  year.  The  charges  from 
Szegedin  to  Vienna  ranged  from  0.30  cent  to  0.40 
cent ;  and  from  Szegedin  to  Regensburg  in  Bavaria, 
a  distance  of  864  miles,  they  ranged  from  0.482  cent 
to  0.523  cent.  From  Widdin,  in  Rumania,  and  be- 
low the  Iron  Gate,  the  charges  to  Budapest,  a  dis- 
tance of  553  miles,  ranged  from  0.40  cent  to  0.462 
cent;  and  to  Regensburg,  a  distance  of  1020  miles, 
they  ranged  from  0.476  cent  to  0.50  cent  per  ton- 
mile. 

At  the  foregoing  rates  there  were  carried  into 
Bavaria,  from  Hungary  and  Rumania,  in  the  three 


AUSTRIA-HUNGARY   AND  DANUBIAN   PROVINCES    151 

years  1898-1900,  73,000  tons  of  wheat  by  river,  as 
against  7000  tons  of  wheat  by  rail,  and  47,000  tons 
of  flour  by  river,  as  against  3000  tons  by  rail.  Only 
in  the  carriage  of  barley,  an  article  in  which  the  in- 
ternational competition  is  not  so  keen  as  it  is  in  wheat 
and  flour,  did  the  railways  come  anywhere  near  to 
holding  their  own  against  the  Danube.  There  were 
carried  into  Bavaria  from  Hungary  and  Rumania, 
by  river,  168,000  tons  of  barley  as  against  177,000 
tons  by  rail. 

In  1900  the  published  charges  for  the  carriage  of 
timber  down  the  rivers  Save,  Drave  and  Theiss,  and 
up  the  river  Danube  to  Budapest,  ranged  from  0.20 
cent  per  short-ton  mile  to  0.373  cent;  to  Vienna,  the 
charges  ranged  from  0.273  cent  to  0.441  cent;  and 
to  Regensburg,  they  ranged  from  0.391  cent  to  0.479 
cent.  At  these  charges  there  were  carried  into  Ba- 
varia from  Hungary,  in  1898  to  1900,  118,000  tons  of 
timber  by  way  of  the  Danube  and  only  51,000  tons 
by  rail. 

In  the  four  years  189 8-1 901  the  rivers  of  Hun- 
gary navigable  by  steam  vessels,  1934  miles  in  length, 
had  an  average  traffic  density  of  389,000  long-ton 
miles,  which  was  slightly  more  than  the  traffic  density 
of  the  railways  of  that  part  of  the  United  States  ly- 
ing west  of  the  Missouri  and  Mississippi  rivers.  In 
these  same  years  the  Hungarian  railways,  16,956 
miles  in  length,  had  a  traffic  density  of  305,000  long- 
ton  miles.     The  average  length  of  haul  for  freight 


152  RAILWAY   RATES 

was  2i8  miles  upon  the  rivers  and  80  miles  upon 
the  railways.  The  average  receipts  per  ton-mile  of 
freight  carried,  in  1896-1900,  were  0.467  cent  upon 
the  rivers  and  1.079  cents  upon  the  railways. 

Upon  the  646  miles  of  the  Danube  which  are 
within  the  boundaries  of  Hungary  the  traffic  density 
is  between  600,000  and  800,000  long-ton  miles.  But, 
Hungarian  although  the  Danube  constitutes  the 

Waterways  vainly  backbone  of  the  transportation  system 

compete  with  ...  i  t 

American  Rail-  10^  the  traffic  ongmatmg  and  endmg 
ivays  within  the  boundaries  of  Hungary,  it 

does  not  afford  an  efficient  means  of  communicat- 
ing with  the  outside  world.  Neither  the  Rhine  nor 
the  Elbe,  the  great  highways  of  western  Europe, 
connect  with  the  Danube,  the  highway  of  central 
and  eastern  Europe.  On  the  other  hand,  the 
keenness  of  the  competition  in  the  international 
markets  is  making  it  more  and  more  difficult  to  use 
transportation  routes  involving  frequent  transfers 
from  river  to  railway  and  from  railway  to  river.  As 
a  consequence,  Hungary  finds  it  more  and  more 
difficult  to  meet,  in  the  markets  of  western  Europe, 
the  competition  of  the  United  States,  Russia  and  the 
Danubian  kingdoms.  It  was  apprehension  from 
this  fact  that  recently  led  the  former  minister  of  rail- 
ways, Mr.  Hieronymi,  to  begin  an  important  discus- 
sion of  the  transportation  situation  in  Hungary  with 
the  statement  that  the  shipment  of  wheat  from 
Budapest   in  Hungary  to  Prague  in  Bohemia  cost 


AUSTRIA-HUNGARY  AND   DANUBIAN   PROVINCES    153 

as  much  as  the  shipment  from  Chicago  to  Liver- 
pool. The  distance  between  Budapest  and  Prague 
is  175  miles  by  air  line  and  483  miles  by  the  Danube, 
the  proposed  Elbe-Moldau-Danube  canal  and  the 
Elbe. 

Hungarian  and  Galician  wheat  and  flour  have 
ceded  the  German  market  to  the  United  States  and 
Russia.  Hungary's  surplus  wheat  is  exported  as 
flour  to  England,  by  rail  to  Fiume  and  thence  by  sea. 
It  is  true  that  with  the  growth  of  population  in  Aus- 
tria and  Hungary  the  grain  available  for  export  from 
Hungary  was  greatly  restricted.  But  that  fact  does 
not  account  entirely  for  the  falling  off  in  the  Hunga- 
rian exports  to  Germany  of  wheat,  flour  and  corn. 
Nor  does  it  account  at  all  for  the  failure  to  make 
Budapest  a  great  milling  centre  for  Continental 
Europe,  a  great  primary  wheat  market  for  the  grain 
raised  in  the  Danubian  kingdoms  and  southwestern 
Russia  and  a  great  beef  and  pork  packing  centre 
for  supplying  western  Europe  with  the  products 
of  southeastern  Europe.  Those  failures  are  due 
entirely  to  the  success  with  which  the  several 
European  countries  have  oppressed  each  other's 
industries,  by  means  of  customs  barriers  and  the 
regulation  of  railway  rates;  and  the  enlightened 
opinion  of  Europe  is  coming  to  recognize  that  the 
latter  engine  of  oppression  has  been  by  no  means 
the  less  effective  of  the  two. 

The  marketing  of  timber,  like  that  of  grain,  has 


154  RAILWAY  RATES 

also  become  a  question  mainly  of  transportation 
charges.  That  is  why,  with  the  increase  from 
718,000  long  tons  in  1890  to  1,643,000  tons  in  1900, 
in  the  importation  into  Germany  of  sawed  timber 
for  building  purposes,  the  proportion  obtained  from 
the  United  States  increased  from  5  per  cent  in  1890 
to  16  per  cent  in  1900;  while  the  proportion  obtained 
from  Austria-Hungary  increased  only  from  27  per 
cent  to  30  per  cent,  and  that  from  Russia  fell  from 
22  per  cent  to  18  per  cent. 

Although  Bohemia,  with  its  extended  tracts  of 
softwood  timber,  lies  at  the  head  of  the  Elbe  and 
immediately  southwest  of  Saxony,  Bohemian  timber 
controls  the  markets  in  the  so-called  Elbe  territory 
only  as  far  down  the  Elbe  as  Magdeburg.  Below 
that  city  the  markets  are  in  the  hands  of  the  dealers 
who  import  timber  from  Russia,  Sweden  and  the 
United  States.  Even  into  southern  Germany,  Aus- 
trian timber  and  Bohemian  timber  penetrate  little 
farther  than  Bavaria. 

The  softwood  timber  of  the  Carpathian  Moun- 
tains and  of  Transylvania  to  no  small  extent  goes  to 
Germany  by  way  of  Odessa  and  Galatz  on  the  Black 
Sea.  In  the  six  years  ending  with  1901,  1,025,000 
long  tons,  or  35  per  cent,  of  the  softwood  lumber  and 
timber  exported  from  Austria-Hungary  to  Germany 
took  this  eastward  route,  entering  Germany  by  way 
of  the  Rhine  and  the  Elbe.  Portions  of  that  timber 
went  as  far  inland  as  Bavaria,  Saxony  and  Silesia. 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    155 

The  oak  of  Hungary,  Croatia  and  Slavonia,  which 
is  exported  by  way  of  Fiume,  on  the  Adriatic,  com- 
petes freely  with  the  American  oak  in  Italy.  It  finds 
it  increasingly  difficult  to  compete  in  France ;  it  com- 
petes scarcely  at  all  in  England ;  it  competes  not  at 
all  in  the  so-called  Elbe  territory  of  Germany,  nor 
in  middle  Germany ;  and  it  competes  only  to  a  mod- 
erate extent  in  southern  Germany,  which  it  reaches 
by  way  of  Fiume,  Rotterdam  and  the  Rhine.  And 
yet  the  Hungarian  oak,  by  reason  of  its  "mildness  " 
and  its  large  percentage  of  tannin,  is  so  much  better 
adapted  to  the  storage  of  wine  and  liquor,  that  it 
brings  in  the  markets  of  Europe  from  lo  per  cent  to 
20  p;er  cent  more  than  does  the  American  oak. 

In  the  period  1895-1900  the  United  Kingdom 
obtained  from  Austria-Hungary  10  per  cent  of  its 
imports  of  hewn  oak  and  8  per  cent  of  its  imports  of 
oak  staves ;  in  that  same  period  it  obtained  from  the 
United  States  62  per  cent  of  its  imports  of  hewn  oak 
and  ;^;^  per  cent  of  its  oak  staves.  In  the  period  1890- 
1900  the  percentage  of  the  German  imports  of  oak 
for  cooperage  purposes  obtained  from  Austria-Hun- 
gary fell  from  90  per  cent  of  the  total  imports  to  61 
per  cent,  while  the  percentage  of  the  imports  from 
America  rose  from  5  per  cent  to  31  per  cent. 

Not  many  years  ago  Bosnia  and  Slavonia,  in  south- 
eastern Hungary,  were  important  sources  of  supply 
of  the  prunes  consumed  in  the  United  States.  To- 
day California  prunes  have  all  but  displaced  Hun- 


156  RAILWAY   RATES 

garian  prunes  in  the  markets  of  England,  and  they 
are  crowding  even  the  French  prunes.  In  1894 
England  obtained  from  France  85  per  cent  of  its  im- 
ports of  prunes,  and  from  the  United  States  none ;  in 
1900  it  obtained  from  France  62  per  cent  and  from 
the  United  States  31  per  cent.  In  1894  England 
obtained  from  Austria-Hungary  30  per  cent  of  its 
imports  of  dried  or  preserved  plums  and  from  the 
United  States  19  per  cent.  In  1899  it  obtained  from 
Austria-Hungary  18  per  cent  and  from  the  United 
States  40  per  cent. 

Prunes  are  one  of  the  principal  products,  if  not  the 
main  product,  of  Servian  agriculture.  They  are 
unnecessarily  handicapped  in  the  struggle  for  the 
markets  of  western  Europe,  particularly  Germany, 
because  burdened  with  the  heavy  transportation 
charges  arising  out  of  the  fact  that  they  go  to  market 
from  the  banks  of  the  Danube  to  Saloniki,  on  the 
yEgean  Sea,  and  thence  to  Rotterdam  and  Hamburg. 

The  soil  and  climate  of  Austria-Hungary  are  ad- 
mirably adapted  to  the  raising  of  apples  and  other 
fruits,  as  well  as  vegetables,  that  could  be  exported 
rr  .to  Germany  fresh,  dried  or  canned. 

Farvters  and  J  ' 

Consumers  suffer   But   the  market  would   have  to  be 

from  Lack  of  Pro-   {Q^f^^^_^\^2L\.     is,     the     pricCS    WOuld 

gresstve  at  ways  j^^^^  ^^  ^^  lowered  SO  that  the  articles 
in  question  could  become  articles  of  diet  for  the 
masses,  being  at  present  consumed  mainly  by  the 
classes.    The  effective  forcing  of  the  market  would, 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    157 

in  turn,  require  that  the  fruits  in  question  be 
handled  in  accordance  with  modern  commercial  and 
transportation  methods.  The  railways  would  have 
to  cooperate  with  the  merchants  to  organize  the  in- 
dustry on  a  large  scale  production  basis.  At  present 
there  is  practically  no  cooperation  of  that  kind. 
Of  the  62,000  tons  of  fresh  and  dried  fruits  sent 
from  Bohemia  to  Berlin  in  the  three  years  ending 
with  1900,  not  less  than  61  per  cent  went  down  the 
Elbe  and  up  the  Havel  and  the  Spree  canal  to  Ber- 
lin, mainly  in  skiffs  of  50  tons'  and  100  tons'  ca- 
pacity. It  is  needless  to  say  that,  under  conditions 
such  as  these,  Europe  never  will  experience  that 
marvellous  transformation  that  the  railways  effected 
in  the  United  States  when  they  cooperated  with  the 
grower  of  vegetables  and  fruits,  and  with  the  mer- 
chant, to  establish  the  modern  truck  gardening  and 
fruit  industries,  and  to  make  the  products  of  these 
industries  articles  of  diet  for  the  middle  classes,  and 
even  for  the  masses. 

In  the  United  States  the  farmer  of  the  East  sought 
relief  from  the  competition  of  western  wheat  by  turn- 
ing, wherever  possible,  to  the  fruit,  vegetable  and 
dairy  industries.  He  had  scarcely  made  the  change 
when  he  was  forced  to  adjust  himself  in  his  new 
industry  to  a  new  and  lower  level  of  prices.  The 
railways,  by  means  of  refrigerator  cars  and  express 
trains,  brought  into  his  markets  the  dairy  products 
of  the  West  and  the  fruits  and  vegetables  of   the 


158  RAILWAY   RATES 

South.  This  competition,  ever  springing  up  from 
the  most  unexpected  quarters,  often  played  havoc 
with  land  values  and  established  interests  in  the 
East,  but  it  helped  to  build  up  the  West  and  the 
South,  and  it  changed  the  habits  of  the  American 
people  as  to  the  eating  of  many  kinds  of  vegetables 
and  fruits. 

The  agricultural  interests  of  eastern  Germany  and 
of  Austria-Hungary,  as  well  as  the  dwellers  in  the 
cities  of  Germany,  would  be  enormously  benefited, 
were  the  railways  of  Germany  and  Austria-Hungary 
to  adopt  American  methods  for  giving  outlying 
districts  access  to  the  large  centres  of  population. 
But  the  conflict  of  sectional  interests  and  class  inter- 
ests, of  which  the  reader  has  had  so  many  examples, 
has  thus  far  prevented  the  railways  from  helping 
themselves,  the  farmers  of  the  outlying  regions  and 
the  consumers  in  the  trading  and  manufacturing 
centres.  From  Austria-Hungary,  from  Silesia  and 
Posen  in  the  East  and  from  Lorraine  in  the  West, 
one  hears  the  cry  for  canals  that  shall  enable  fruits 
and  vegetables  to  move  to  Berlin.  And  within  the 
city  limits  of  Berlin  one  can  count,  and  smell,  up- 
ward of  14,000  cows,  kept  there  to  supply  the  popu- 
lation with  milk  that  the  railways  are  not  allowed 
to  bring  from  a  distance. 

In  the  five  years  ending  with  1900,  Bohemia  and 
Moravia  sent  to  Hamburg,  by  way  of  the  railway  to 
Laube-Tetschen  on  the  Elbe,  and  thence  by  river, 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    159 

1,354,000  long  tons  of  sugar,  as  against  less  than 

1000  tons  sent  by  all-rail  route.     The  distance  from 

Laube-Tetschen  to  Hamburg  is  420 

Traffic  which  tn-  1  i  -i  1 

vites  Cooperation  ^iles,  SO  that  the  railways  lost  114,- 
of  European  ooo,ooo  ton-miles  of  traffic  a  year 
states  in  Railway  through  their  failure  to  drive  the  river 

Development  °  r  i       • 

vessels  out  of  busmess. 

In  the  five  years  ending  with  1901,  Austria-Hun- 
gary sent  into  the  so-called  Elbe  territory  of  Germany, 
which  includes  Berlin  and  Hamburg,  1,639,000  tons 
of  timber  and  lumber  by  river,  as  against  1,754,000 
tons  sent  by  rail.  Not  less  than  82  per  cent  of  the 
traffic  by  rail  was  mere  neighborhood  traffic  —  that 
is,  traffic  into  the  kingdom  of  Saxony.  The  long- 
distance traffic  in  lumber  exported  from  Bohemia 
almost  all  went  by  rail.  For  example,  in  the  three 
years  ending  with  1900,  Magdeburg,  which  is  290 
miles  from  Laube-Tetschen,  received  128,000  tons 
of  lumber  by  river  and  only  20,000  tons  by  rail. 

In  the  five  years  ending  with  1900,  Bohemia  sent 
into  the  Elbe  territory  19,027,000  tons  of  coal  by  rail, 
as  against  9,949,000  sent  by  river.  But  here  again 
not  less  than  83  per  cent  of  the  traffic  by  rail  was 
local  traffic  to  Saxony.  To  Magdeburg  the  railways 
carried  in  the  four  years  ending  with  1901  only 
32,000  tons  of  coal,  as  against  1,277,000  tons  carried 
thither  by  river.  Of  the  latter  quantity,  about  25 
per  cent  to  30  per  cent  was  transferred  to  the  railways 
at  Magdeburg,  to  be  carried  to  neighboring  points. 


160  RAILWAY   RATES 

To  Brandenburg  and  Berlin  there  were  carried  from 
Bohemia  in  1901,  395,000  tons  of  coal  by  way  of  the. 
Elbe  and  the  Havel  and  the  Spree  canal,  as  against 
164,000  tons  sent  directly  by  rail. 

In  the  four  years  ending  with  1901,  there  were 
carried  down  the  Elbe  across  the  Bohemian  frontier 
11,226,000  tons  of  freight,  or  36  per  cent  of  the  ex- 
ports of  Austria-Hungary  to  the  so-called  German 
Elbe  territory ;  in  that  same  period  there  were  carried 
up  the  Elbe  into  Bohemia,  1,818,000  tons  of  freight, 
or  54  per  cent  of  the  exports  from  the  Elbe  territory 
into  Austria-Hungary.  The  traffic  was  carried  in 
vessels  which  carried,  on  an  average,  from  300  tons 
to  400  tons  of  freight;  and  it  involved  at  least  one 
transfer  from  river  to  railway  or  railway  to  river. 
It  was  traffic  in  commodities  as  to  which  the  inter- 
national competition  for  the  markets,  especially  the 
competition  between  the  United  States  and  Europe, 
each  year  is  becoming  keener.  It  was  traffic  in 
which  minute  differences  as  to  cost  of  transportation 
not  only  affect  seriously  the  profits  of  the  producer 
and  the  trader,  but  even  determine  whether  the  com- 
modities shall  become  the  objects  of  international 
trade  —  that  is,  whether  they  shall  be  produced  and 
bought  and  sold. 

It  was  the  increasing  competition  in  the  world's 
markets  that  recently  led  the  Austrian  Parliament  to 
enact  measures  authorizing  the  construction  of  some 
1 100  miles  of  canals  which  will  connect  the  Elbe, 


AUSTRIA-HUNGARY  AND  DANUBIAN   PROVINCES    161 

the  Danube,  the  Oder,  the  Vistula  and  the  Dniester, 
so  that  600-ton  vessels  shall  be  able  to  pass  from  one 
to  the  other.  The  construction  of  the  canals  was 
authorized  on  the  supposition  that  it  would  cost 
$375,000,000.  In  the  eighties  a  similar  legislative 
proposal  had  been  defeated,  largely  through  the 
efforts  of  Mr.  von  Nordling,  a  former  Austrian  State 
railway  official.  Mr.  von  Nordling  had  argued  that 
canals  could  not  render  trade  and  industry  the  ser- 
vice that  railways  could  render  when  making  their 
rates  on  the  principle  of  charging  what  the  traffic 
would  bear.  Technically  the  Austrian  expert  was 
right;  but  he  was  arguing  at  a  time  when  State 
ownership  of  the  railways  in  Europe  was  in  its  in- 
fancy, when  it  had  not  had  a  chance  to  show  how  it 
was  destined  to  paralyze  the  trade  and  the  industry 
of  Europe. 

Upon  the  Elbe  and  its  tributaries  the  traffic  density 
is  2,405,000  long-ton  miles  per  mile  of  river,  and  the 
average  length  of  haul  per  ton  of  freight  carried  is 
275  miles.  Upon  the  Oder  the  traffic  density  is 
1,029,000  long- ton  miles  and  the  average  length  of 
haul  is  270  miles.  Upon  the  Austrian  Danube  the 
traffic  density  is  300,000  long-ton  miles  and  the  aver- 
age length  of  haul  is  little  short  of  250  miles.  Upon 
the  Hungarian  Danube  the  traffic  density  is  between 
600,000  and  800,000  long-ton  miles  and  the  average 
haul  is  240  miles.  Upon  the  Danube  in  Rumania 
the  traffic  density  is  almost  equal  to   that  on   the 


162  RAILWAY  RATES 

Danube  in  Hungary  and  the  average  haul  probably 
is  not  much  under  300  miles.  These  figures  show 
conclusively  that,  if  one  could  secure  cooperation 
between  the  railways  of  Germany,  Austria,  Hungary 
and  the  Danubian  provinces,  one  would  be  justified 
in  developing  the  existing  lo-ton  car  and  200  to  300 
ton  train-load  railways  into  railways  of  the  American 
type.  Such  railways  would  bring  into  existence  an 
enormous  traffic  that  at  present  cannot  come  into 
being ;  they  would  throw  out  branch  lines  into  regions 
that  never  can  be  reached  by  canals ;  and  they  would 
render  central  and  eastern  Europe  services  such  as 
600-ton  waterways  never  can  render. 


CHAPTER  VII 

RUSSIA 

In  Russia  the  State  exercises  control  over  the  rail- 
way rates  in  two  ways.  In  the  first  place,  the  State 
itself  owns  and  operates  upward  of  65  per  cent  of 
the  railways  of  Russia,  and  it  is  steadily  increasing 
its  predominance.  In  the  second  place,  the  Russian 
State  council,  in  June,  1887,  by  decree,  asserted  the 
right  of  the  State  to  regulate  all  railway  rates,  ''in 
order  to  conserve  the  interests  of  the  State,  of  the 
people,  of  industry  and  of  trade." 

Even  before  the  State  had  assumed  these  wide 
powers,  it  had  intervened  in  specific  instances  of 
rate-making.  For  example,  in  1885  it  had  decreed 
that  in  the  future  all  rates  on  imported  articles  must 
be  submitted  to  the  Government  for  approval.  That 
decree  had  been  issued,  partly  for  the  purpose  of 
supplementing  the  policy  of  protection  to  Russian 
industries,  partly  for  the  purpose  of  fostering  the 
Russian  shipping  industry.  It  proved  effective  so 
far  as  the  destruction  of  international  trade  overland 
by  rail  was  concerned ;  for  in  the  three  years  ending 

163 


164  RAILWAY   RATES 

with  1 90 1  the  German  railways  carried  into  Russia 
proper  (excluding  the  neighborhood  trade  with  Po- 
land) only  130,000  long  tons  of  freight  a  year.  In 
1903  this  policy  of  destroying  overland  traffic  by  rail 
was  further  accentuated  by  legislation  which  im- 
posed an  additional  duty  of  20  per  cent  on  all  dutiable 
articles  imported  by  rail  by  way  of  the  western  fron- 
tier, as  distinguished  from  articles  brought  in  by  sea. 
In  1884-87,  when  82  per  cent  of  the  railway 
mileage  of  Russia  was  still  owned  and  operated  by 
corporations,  the  rates  on  grain  destined  for  export 
fluctuated  greatly  in  consequence  of  the  competition 
of  the  railway  lines  leading  respectively  to  the  Baltic 
Sea  and  the  Black  Sea.  The  public,  or  sections  of 
it,  complained  of  the  fluctuations  and  of  the  in- 
equalities in  rates,  and  alleged  that  the  rapid  and 
unequal  reductions  in  rates  increased  the  profits 
of  the  merchants,  with  no  benefit  to  the  farmer. 
Thereupon  the  State  took  up  the  matter,  and  in  No- 
vember, 1888,  it  issued  a  provisional  tariff  for  the 
carriage  of  grain.  The  characteristic  feature  of  that 
tariff  was  its  rapidly  tapering  rates,  which  were  de- 
signed to  give  the  agricultural  products  of  the  remote 
regions  of  Russia  access  to  the  market,  domestic  as 
well  as  foreign.  For  the  first  240  miles  of  any  haul 
the  rate  was  to  be  1.647  cents  per  short-ton  mile,  for 
the  next  830  miles  it  was  to  be  0.495  cent  per  ton- 
mile,  and  for  the  following  880  miles  it  was  to  be  0.197 
cent.     Grain  shipped  upward  of  1950  miles  was  to 


RUSSIA  165 

pay  on  the  assumption  that  it  was  carried  1950  miles 
only. 

In  1889  the  rates  on  grain  were  raised  somewhat, 
and  the  new  rates  were  retained  until  1893.  I^  that 
year  was  abandoned  the  past  policy  of  bending  every 
Sectional  Issues  energy  to  giving  the  remote  regions 
appear  in  Riis-  access  to  the  markets,  domestic  or 
Stan  Railway        foreign,  and  then  was  established  the 

anagemen  policy  of  protecting  the  old-established 

agricultural  interests  of  central  Russia  from  the  com- 
petition of  the  newly  opened  regions  of  eastern  Russia. 
Previous  to  the  building  of  railways  into  eastern  Rus- 
sia, central  Russia  had  enjoyed  the  monopoly  of  sup- 
plying with  agricultural  produce  the  most  important 
Russian  domestic  markets  —  those  of  the  industrial 
regions  of  the  West,  the  Northwest  and  the  valley  of 
the  Vistula.  The  breaking  of  this  monopoly,  through 
the  opening  up  of  the  East,  coincided  with  the  world- 
wide fall  in  the  price  of  grain  which  began  in  the 
eighties ;  and  those  two  factors  precipitated  a  decline 
in  land  values  in  central  Russia.  The  landowners 
of  that  region  were  sufficiently  powerful  politically 
to  force  the  Government  to  recognize  the  doctrine 
which  the  Interstate  Commerce  Commission  would 
love  to  introduce  into  this  country  —  namely,  that 
each  locality  or  section  is  entitled  by  natural  right 
to  the  advantages  of  trade  or  industry  accruing  to 
it  by  virtue  of  its  geographical  position.  The  land- 
owners of  central  Russia  claimed  that  they  had  the 


166  RAILWAY  RATES 

first  right  to  the  markets  of  the  West,  the  Northwest 
and  the  valley  of  the  Vistula;  and  they  forced  the 
State  to  recognize  that  claim. 

In  the  revision  of  the  grain  rates  made  in  1893,  the 
Government  reduced  the  rates  generally ;  but  it  made 
an  exceptionally  heavy  reduction  upon  grain  shipped 
to  domestic  markets  over  distances  not  exceeding  213 
miles,  on  the  theory  that  points  within  213  miles  of  a 
domestic  market  should  have  especially  low  rates  to 
that  market.  It  was  expected  that  the  concession 
in  question  would  give  the  farmers  within  200  miles 
of  an  industrial  centre  a  qualified  monopoly  of  sup- 
plying that  centre,  and  thus  would  enable  them  to 
raise  the  price  of  their  agricultural  land,  at  the  ex- 
pense partly  of  the  population  of  the  industrial  centres 
and  partly  of  the  railway  revenues. 

The  revision  of  rates  in  1893  was  intended  to  help 
the  farmers  of  the  remote  districts,  by  making  re- 
ductions in  rates  which  should  enable  them  to  ship 
their  grain  past  the  cities  reserved  for  the  farmers 
of  central  Russia  to  the  seaports  on  the  Baltic  and 
the  Black  Sea.  But  the  price  of  wheat  and  rye  fell 
very  rapidly  in  1893-95,  ^^^  the  reductions  made 
in  1893  proved  insufiicient  for  carrying  off  without 
much  friction  the  grain  of  the  remote  regions.  The 
grain  that  could  not  be  exported  freely  was  thrown 
upon  the  markets  of  central  Russia.  That  fact,  to- 
gether with  the  fall  in  prices  in  the  international 
markets,  caused  a  further  drop  in  the  value  of  land 


RUSSIA  167 

in  central  Russia  in  1893-96;  and  that  fall  inland 
values  led,  in  1896,  to  a  renewed  effort  to  use  the 
power  of  the  State  to  relieve  the  landowners  of 
central  Russia. 

The  legislation  of  1896  increased  from  213  miles 
to  361  miles  the  distance  over  which  especially  low 
rates  were  given,  for  the  purpose  of  conserving  to  the 
farmers  of  central  Russia  a  qualified  monopoly  of 
the  markets  of  the  industrial  West,  the  Northwest 
and  the  valley  of  the  Vistula.  In  order  to  make 
good  the  loss  of  revenue  anticipated  from  the  exten- 
sion of  the  "low-rate  belts,"  the  rates  on  long-dis- 
tance shipments  were  raised,  so  that  all  shipments 
over  800  miles  paid  more  under  the  tariff  of  1896  than 
they  had  paid  under  the  tariff  of  1893.  The  serious 
nature  of  such  an  increase  in  charges  may  be  in- 
ferred from  the  fact  that  about  one-third  of  the  ex- 
port grain  of  Russia  that  goes  to  the  place  of  export 
by  rail  is  sent  abroad  by  way  of  the  Baltic  ports, 
after  travelling  by  rail  distances  that  range  from 
735  miles  to  1070  miles.  Another  14  per  cent  goes 
abroad  across  the  western  frontier,  and  that  also 
makes  a  long  journey  by  rail  in  Russia,  Again,  as 
late  as  1899,  one  of  the  leading  writers  on  Russian 
economic  conditions,  Mr.  von  Schulze-Governitz, 
stated  that  the  transportation  charges,  even  from  the 
districts  lying  west  of  the  river  Volga,  frequently 
exceeded  50  per  cent  of  the  value  of  grain  in  the  Baltic 
ports. 


168  RAILWAY  RATES 

In  1900  the  rates  on  grain  were  revised.  Once 
more  the  Government  tried  to  reduce  the  rates  on 
long-distance  shipments ;  and  once  more  it  was  com- 
pelled to  yield  to  the  demands  of  central  Russia,  and 
raise  the  charges  on  the  long-distance  shipments  of 
wheat. 

In  the  period  from  1889  to  1895  the  average  re- 
ceipts per  ton-mile  for  grain  carried  "for  domestic 
use"  had  fallen  from  1.094  cents  per  ton-mile  to 
Development  of  0.889  cent,  or  18.7  per  cent.  In  that 
Agriculture  in  Same  time  the  average  receipts  per 
Eastern  Russia  ton-mile  for  grain  carried  "for  ex- 
port" had  fallen  from  0.889  cent  to 
0.839  cent,  or  5.6  per  cent  only.  In  the  period  in 
question,  the  average  length  of  haul  of  grain  "for 
domestic  use"  had  risen  from  255  miles  to  330 
miles,  whereas  that  of  grain  carried  "for  export" 
had  remained  stationary  at  440  miles,  showing 
that  the  adjustment  of  rates  had  not  been  such 
as  to  force  the  cultivation  of  the  soil  in  the  outly- 
ing regions,  where  there  is  still  much  untilled  arable 
land. 

By  increasing  the  area  of  land  under  cultivation 
or  by  improving  the  methods  of  tilling  the  soil,  Rus- 
sia could  increase  enormously  its  production  of  grain. 
For  any  increased  product  Russia  would  have  two 
markets, — the  export  market  and  the  market  created 
by  the  city  population  of  Russia  itself.  Of  these 
two  markets,  the  former  is  the  more  elastic,  a  fact 


RUSSIA  169 

which  makes  it,  in  the  immediate  present,  the  better 
market  to  cultivate. 

Seven-eighths  of  the  population  of  Russia  is  coun- 
try population,  and  lives  by  agriculture.  The  great 
bulk  of  this  population  lives  west  of  the  Volga,  and 
has  a  miserably  low  standard  of  living,  largely  be- 
cause the  land  is  relatively  overpopulated.  If  the 
surplus  population  to  the  west  of  the  Volga  could  be 
moved  to  the  untilled  lands  east  of  the  Volga,  the 
standard  of  living  of  all  Russia  could  be  raised  enor- 
mously, and  there  could  be  developed  in  Russia  a 
country  population  which  would  demand  manufac- 
tured articles  of  all  kinds,  and  would  thus  give  rise 
to  manufacturing  industries  in  Russia.  The  per- 
sons engaged  in  those  industries  in  turn  would  con- 
stitute a  numerous  city  population,  which  would 
demand  great  quantities  of  agricultural  products  of 
all  kinds.  The  first  step  in  the  process  just  indicated 
would  be  to  move  on  to  the  lands  of  the  East  the  sur- 
plus population  of  the  West.  In  the  beginning  — 
that  is,  until  the  city  population  of  Russia  itself  should 
be  brought  into  existence  —  the  pioneer  farmers  of 
the  East  would  have  to  depend  mainly  upon  the  ex- 
port market;  and  this  is  why  it  was  bad  policy  for 
Russia  to  abandon,  in  1893,  the  policy  of  bending 
every  energy  to  giving  the  settlers  of  the  outlying 
regions  access  to  all  markets,  domestic  as  well  as 
foreign. 

The  attempt  to  keep  up  the  value  of  land  in  cen- 


170  RAILWAY   RATES 

tral  Russia  was  ill-advised  in  every  way.  Even  if  it 
had  been  successful,  it  would  not  have  created  any 
serious  demand  for  the  products  of  the  Russian  manu- 
facturing industries.  If  successful,  it  would  but  have 
raised  land  rents,  which  go  into  the  pockets  of  the 
landholding  aristocracy  —  a  class  too  small  to  create 
a  demand  for  manufactured  products  sufficient  to 
give  rise  to  a  Russian  manufacturing  industry.  Such 
a  demand  could  come  only  from  the  great  mass  of 
the  people,  the  peasants  and  the  farmers,  who,  in  the 
main,  till  land  which  they  rent  from  the  aristocracy. 
To  these  peasants  and  farmers  it  is  a  matter  of  in- 
difference whether  land  values  and  rents  are  high, 
or  whether  land  values  and  rents  are  low:  to 
them  the  vital  matter  is  the  margin  between  the 
price  of  agricultural  produce  and  the  cost  of  raising 
and  marketing  such  produce.  And  the  transporta- 
tion charges  on  the  produce  going  to  the  international 
markets  are  among  the  most  important  items  con- 
stituting the  cost  of  raising  and  marketing  agricultu- 
ral produce.  As  far  back  as  the  period  1889-95 
not  less  than  60  per  cent  of  the  grain  carried  upon 
the  railways  of  Russia  was  grain  destined  for  export. 
No  one  could  appreciate  more  keenly  than  did  the 
Minister  of  Finance,  Mr.  de  Witte,  the  need  of  facil- 
itating Russia's  export  trade  in  grain.  But  in  this 
matter,  as  in  others,  Mr.  de  Witte  was  blocked  by 
sectional  jealousies,  class  interests  and  unintelligent 
public  opinion  —  the  last  of  the  three  forces  being 


RUSSIA  171 

largely  the  product  of  the  suspicion  of,  and  hostility 
to,  the  man  of  affairs,  propagated  so  successfully  by 
the  latter-day  European  political  economy.  What 
kind  of  forces  Mr.  de  Witte  had  to  contend  against 
can  be  best  illustrated  by  an  enumeration  of  the  rea- 
sons that  led  to  the  rejection,  in  1896,  of  the  proposal 
that  there  be  established  a  uniform  rate  of  0.427  cent 
per  ton-mile  on  grain  —  primarily  in  the  interest  of 
the  "export  traffic."  The  body  of  landowners, 
millers  and  railway  officials,  public  and  private, 
convened  by  the  Government  to  report  upon  this 
proposal,  rejected  the  proposal  on  the  following 
grounds :  the  reduction  would  cause  a  loss  of  reve- 
nue of  $17,500,000  to  the  State  railways  and  of 
$2,500,000  to  the  private  railways.  It  would  bene- 
fit primarily  the  southern  regions  and  the  more  re- 
mote eastern  ones,  at  the  expense  of  central  Russia. 
Again,  in  the  past  the  landowners  who  had  been  able 
to  market  their  produce  by  using  the  rivers  had  en- 
joyed an  advantage  over  those  landowners  who  had 
been  obliged  to  use  the  railways.  That  was  because 
the  transportation  charges  upon  the  rivers  were  very 
much  below  those  upon  the  railways.  Those  owners 
of  land  that  had  access  to  the  rivers  must  not  be  de- 
prived of  that  relative  advantage  through  the  lower- 
ing of  the  railway  charges.  Finally,  it  was  objected 
that  a  considerable  and  sudden  reduction  in  freight 
rates  would  so  stimulate  the  production  of  grain  as 
to  cause  a  corresponding  decline  in  the  price  of  grain 


172  RAILWAY  RATES 

in  the  international  markets  and  would,  therefore, 
redound  only  to  the  benefit  of  the  foreign  consumer. 
To  raise  grain  for  the  purpose  of  "dumping"  it  on 
the  international  market  would  be  to  waste  the  na- 
tion's resources  and  to  misapply  the  nation's  labor. 

Upon  the  opening  of  the  western  portion  of  the 
Trans-Siberian  Railway,  in  1896,  the  Government 
extended  to  the  carriage  of  Siberian  wheat  the  policy 
Prohibitive  Rates  ^^  protecting  the  West  against  the 
on  Siberian  competition  of  the  East ;  only  the  dis- 

^^^(^^  crimination  in  rates  practised  against 

Siberian  wheat  exceeds  that  against  the  wheat  of 
the  eastern  regions  of  Russia  proper.  Under  the 
system  of  tapering  rates  in  force  upon  the  Russian 
and  Siberian  railways,  the  charge  per  ton-mile  falls 
from  1.804  cents  for  the  first  120  miles  to  0.692  cent 
for  that  part  of  the  haul  comprised  between  121 
miles  and  294  miles,  and  finally  to  0.250  cent  for  that 
part  of  the  haul  between  895  miles  and  1094  mUes. 
But  for  that  part  of  the  haul  comprised  between  1095 
miles  and  1888  miles,  the  charge  rises  to  0.391  cent; 
and  for  distances  beyond  1888  miles  the  charge  per 
ton-mile  becomes  0.564  cent. 

Reval,  on  the  Baltic,  is  the  favorite  port  for  the 
Siberian  wheat  seeking  the  market  of  England  and 
Germany.  It  is  2400  miles  from  Omsk,  the  first 
important  grain  market  upon  the  Trans-Siberian 
Railway,  2790  miles  from  Kriwoschtschekowo,  the 
second    important    market,   and    3265    miles  from 


RUSSIA  173 

Krassnojarsk,  the  third  important  grain  market. 
The  discrimination  against  Siberian  wheat  sent  from 
these  three  Siberian  stations  is  respectively  $3,  $4.34 
and  $5.98  a  gross  ton.  In  1899  these  sums  would 
have  been  equivalent  respectively  to  23  per  cent  and 
33  per  cent  of  the  price  of  wheat  and  rye  at  Omsk; 
to  respectively  40  per  cent  and  62  per  cent  of  the  price 
of  wheat  and  rye  at  Kriwoschtschekowo ;  and  to  re- 
spectively 68  per  cent  and  125  per  cent  of  the  price 
of  wheat  and  rye  at  Krassnojarsk.  When  one  takes 
into  consideration  that  the  Siberian  wheat  regions 
lie  to  the  south  of  the  Trans-Siberian  Railway,  and 
that  the  wheat  goes  to  Omsk  and  Kriwoschtschekowo 
by  river,  one  may  say  that  the  discriminating  charges 
imposed  upon  Siberian  wheat  exported  by  way  of 
the  Baltic  ports  take  from  the  Siberian  farmer,  whose 
wheat  goes  to  Omsk  and  Kriwoschtschekowo,  from 
one-third  to  one-half  of  the  value  of  the  wheat  on 
the  farm. 

On  the  through  shipment  from  Omsk  to  Reval, 
the  rate  per  short-ton  mile  is  0.550  cent;  from  Kri- 
woschtschekowo it  is  0.552  cent;  and  from  Krass- 
nojarsk it  is  0.585  cent.  Under  the  application  of 
the  rates  established  by  the  provisional  tariff  of  1888, 
the  charge  per  ton-mile  would  be  0.408  cent  from 
Omsk,  0.351  cent  from  Kriwoschtschekowo  and 
0.300  cent  from  Krassnojarsk.  Again,  the  railways 
at  present  are  carrying  steel  and  iron  from  the  Baltic 
ports  to  Irkutsk,  on  Lake  Baikal,  a  distance  of  4360 


174  RAILWAY   RATES 

miles,  for  0.30  cent  per  ton-mile.  As  far  back  as 
1892-94  the  average  cost  of  moving  freight  on 
the  Russian  railways  was  0.286  cent  per  short-ton 
mile.  The  foregoing  rate  on  iron  and  steel,  there- 
fore, is  profitable,  and  it  gives  a  rough  indication  of 
the  rates  that  the  Russian  Government  could  quote 
on  Siberian  grain  if  it  were  at  liberty  to  pursue  a 
businesslike  policy. 

The  Government  is  compelled  to  try  to  keep  Sibe- 
rian wheat  out  of  the  ports  of  the  Baltic  Sea  and  the 
Black  Sea,  on  the  theory  that  the  Siberian  wheat  will 
not  depress  the  price  of  Russian  wheat,  if  it  can  be 
marketed  without  touching  the  ports  used  by  the 
Russian  wheat.  Therefore  the  Government  has 
built  a  railway  from  Tscheljabinsk,  on  the  Siberian 
frontier,  to  Kotlass,  situated  at  the  point  where  the 
rivers  Sukhona  and  Vichegda  join  to  form  the  river 
Dvina.  From  Kotlass  the  wheat  is  carried  down  the 
river  a  distance  of  400  miles  to  Archangelsk,  on  the 
White  Sea,  which  is  closed  to  navigation  seven  or 
eight  months  in  the  year.  In  order  to  induce  Sibe- 
rian wheat  to  take  this  route  to  western  Europe,  the 
Government  abates  the  exactions  paid  by  wheat  ex- 
ported by  way  of  the  Baltic  ports.  But  that  does  not 
materially  help  the  Siberian  farmer.  As  late  as  1900 
the  charge  for  carrying  wheat  from  Archangelsk  to 
London  was  $2  a  ton  in  excess  of  the  charge  from 
the  Baltic  ports  to  London.  Then  again  the  wheat 
must  lie  over  for  seven  to  eight  months  at  Kotlass  or 


RUSSIA  175 

Archangelsk,  where  money  is  worth  upward  of  15 
per  cent  a  year.  All  these  facts  taken  into  considera- 
tion, one  is  not  surprised  to  learn  that  Siberian  wheat 
can  be  sent  to  the  markets  of  western  Europe  only 
in  years  in  which  the  price  of  wheat  is  exceptionally 
high  in  those  markets,  because  of  crop  failures  in  one 
or  more  of  the  countries  which  ordinarily  supply 
western  Europe.  Nor  is  one  surprised  to  learn  that 
the  amount  of  wheat  carried  by  the  Trans-Siberian 
Railway  remained  stationary  from  1898  to  1901  at 
about  330,000  long  tons  a  year,  even  though  the  im- 
migration into  Siberia  from  Russia  in  189 5-1 900 
had  aggregated  1,046,000  people,  and  the  land  occu- 
pied by  the  immigrants  of  1 893-1 900  had  amounted 
to  7,500,000  acres. 

The  Russian  emigrants  who  in  the  seventies  had 
settled  in  the  best  parts  of  the  Siberian  territory 
of  Akmolinsk,  which  lies  immediately  east  of  the 
Need  of  American  Russian  frontier  and  south  of  the 
Railway  Rate  Trans-Sibcrian  Railway,  in  1891  were 
Practices  cultivating  on  an  average  25  acres  of 

land  for  grain  per  farm.  Going  eastward  one 
comes  to  the  Altaj  region,  "the  Eldorado  of  the  im- 
migrants," where  in  the  later  eighties  the  settlers 
were  planting  to  grain  on  an  average  15  acres  per 
farm.  Turning  northward  to  the  province  of  Tomsk, 
one  finds  that  in  1894  the  settlers  had  under  grain 
on  an  average  13  acres  per  farm.  In  the  neighbor- 
ing province  of  Jenisseisk,  in  1890-92,  the  average 


176  RAILWAY   RATES 

area  under  wheat  was  19  acres  per  settler.  These 
were  the  average  sizes  of  the  areas  per  farm  under 
grain  in  regions  in  which  the  average  size  of  the  farms 
themselves  ranged  from  56  acres  to  117  acres.  It 
is  true  that  the  foregoing  figures  refer  to  the  period 
before  the  building  of  the  Trans-Siberian  Railway, 
of  which  the  western  portion  was  opened  in  1896. 
But  it  is  equally  true  that  the  building  of  the  railway 
in  question  can  make  no  material  change  in  the  situa- 
tion indicated  by  the  figures  quoted,  so  long  as  the 
railway  shall  be  managed  as  it  has  been  managed  in 
the  past. 

Professor  Issajeff,  writing  in  1891  or  thereabout, 
expressed  the  opinion  that  the  Russian  farmer  who 
owned  25  to  30  acres  of  land  would  gain  little  by 
emigrating  to  Siberia ;  and  that  the  man  who  could 
materially  improve  his  condition  by  emigrating  was 
the  peasant  who  owned  but  3  to  6  acres.  In  1898 
Mr.  Kaufmann,  an  official  of  wide  experience  in  the 
taking  of  agricultural  censuses  in  Siberia,  stated  that 
his  own  experience  supported  the  opinion  expressed 
by  Professor  Issajeff.  He  said  that  the  Russian 
peasant  or  farmer  who  cultivated  from  13  to  22  acres 
would,  on  an  average,  not  increase  the  area  which 
he  had  been  cultivating  were  he  to  emigrate  to 
Siberia. 

In  the  western  division  of  the  United  States  the 
average  number  of  acres  of  improved  land  per  farm 
rose  from  52  acres  in  1850  to  168  acres  in  1870,  and 


RUSSIA  177 

to  1 86  acres  in  1880.  Subsequently,  with  the  filling 
up  of  our  country,  it  fell  to  112  acres  in  1900.  The 
period  ending  with  1880  was  the  period  of  pioneer, 
or  one-crop,  farming.  It  was  the  period  in  which 
our  country  was  opened  to  settlement  by  means  of 
farmers  who  moved  to  the  frontier  ahead  of  popu- 
lation, there  to  raise  food-stuffs  for  consumption 
upon  the  Atlantic  seaboard  and  in  Europe.  The 
incomparable  efficiency  with  which  the  American 
railway  served  those  pioneer  farmers,  or  one-crop 
farmers,  enabled  those  men  to  attain  and"  maintain 
a  high  standard  of  living,  and  that  meant  the  crea- 
tion of  a  market,  growing  with  tremendous  rapidity, 
for  the  products  of  the  factories  of  the  Eastern 
and  the  Middle  States.  The  cotton  industry,  the 
woollen  industry  and  the  shoe  industry  of  the  Atlan- 
tic seaboard,  the  iron  and  steel  industry  of  Pennsyl- 
vania, and  the  innumerable  other  manufacturing 
industries  of  the  Atlantic  seaboard  States  and  of 
Pennsylvania,  New  York  and  Ohio,  would  not  have 
experienced  the  marvellous  growth  which  they  in 
fact  enjoyed,  had  it  not  been  for  the  western 
farmer's  demands  for  the  products  of  those  indus- 
tries. On  a  relatively  smaller  scale,  but  on  a  scale 
still  large  absolutely,  Russia  might  make  Siberia  serve 
the  same  purpose  that  our  West  served  the  United 
States.  It  might  create  in  eastern  Russia  and  in 
Siberia  an  agricultural  population  with  a  standard 
of  living  incomparably  higher  than  the  present  stand- 


178  RAILWAY  RATES 

ard;  and  that  population  would  give  to  Russia's 
infant  industries  an  impetus  such  as  the  policy  of 
protection  and  subsidies,  direct  or  indirect,  cannot 
hope  to  give. 

One  is  apt  to  deem  the  Russian  and  the  Siberian 
peasant  hopelessly  unprogressive.  Therefore  it  is 
worth  while  to  recount  what  the  Siberian  peasant  has 
Proof  that  Siberia  been  made  to  do  under  the  incentive 
would  respond  to   ^^     -     -^^  ^^^  ^^.^  instance  in  which 

the  Stimulus  of  "  ^ 

Low  Railway  the  railways  were  free  to  cooperate 
i^ates  with  men  of  enterprise  and   capital 

in  the  development  of  Siberia's  resources.  As 
Russia  proper  produces  no  butter  for  export  worth 
mentioning,  there  were  no  interests  to  oppose  the 
building  up  of  Siberia's  export  trade  in  butter. 
In  1894  there  were  in  Siberia  two  creameries  which 
produced  butter  for  export — 14,500  pounds.  In  1902 
there  were  between  2000  and  2500  such  creameries, 
producing  for  export  90,280,000  pounds  of  butter. 
That  product  was  worth  about  $12,500,000,  or 
I3  per  man,  woman  and  child  living  in  the  three 
principal  butter-manufacturing  provinces:  Tobolsk, 
Tomsk  and  Jenisseisk. 

From  points  as  far  in  the  interior  of  Siberia  as 
Minussinsk,  on  the  Jenissei  River,  350  miles  south 
of  Krassnojarsk,  butter  is  carried  by  river  to  the 
Trans-Siberian  Railway,  and  thence  by  special  butter 
trains  to  the  Baltic  ports,  for  export  to  Denmark, 
England  and  Germany.    The  butter  trains  consist 


RUSSIA  179 

of  20  to  25  refrigerator  cars;  they  travel  about  202 
miles  a  day ;  and  the  charge  for  the  carriage  of  butter 
is  about  one  cent  per  short-ton  mile.  With  that 
charge  in  force,  best  quality  butter  sells  at  wholesale 
for  15  cents  to  18  cents  a  pound  at  Tomsk,  and  cook- 
ing butter  sells  at  retail  for  10  to  11  cents. 

Were  the  Russian  Government  free  to  cooperate 
with  equal  energy  and  intelligence  with  the  men  of 
enterprise  and  capital  who  stand  ready  to  develop 
Siberia,  that  country  shortly  would  have  an  enormous 
export  trade  in  grain,  cattle,  beef  and  lumber.  The 
development  of  Siberia  would  relieve  western  and 
central  Russia  of  its  present  condition  of  over-popu- 
lation; and  would  raise  the  scale  of  living  in  those 
regions,  not  only  by  drawing  on  the  surplus  popula- 
tion, but  also  by  supplying  the  population  that  would 
remain  behind  with  cheap  meats,  timber  and  fuel. 
At  present  the  annual  consumption  of  meat  per  in- 
habitant is  about  38  pounds  for  Russia  as  a  whole 
and  about  20  pounds  for  the  country  districts.  In 
southern  Russia  the  scarcity  of  timber  and  fuel  is 
such  that  the  inhabitants  even  of  the  larger  villages 
and  the  towns  burn  nothing  but  manure. 

The  wooden  plough  used  by  the  peasants  of  Great 
Russia  scrapes  the  ground,  or  rather  tears  it,  to  the 
depth  of  1 1  inches.  That  used  by  the  peasants  of 
Little  Russia  penetrates  to  the  depth  of  2  or  3  inches. 
For  Russia  as  a  whole,  the  agricultural  output  per 
head  of  farming  population  is  only  10  per  cent  of  that 


180  RAILWAY   R.A.TES 

of  the  United  States.  The  Russian  peasant  compares 
with  the  American  farmer  as  does  the  hand  weaver 
with  the  weaver  who  uses  machinery.  These  facts 
will  indicate  to  the  reader  the  revolution  that  could  be 
effected  in  Russia  and  Siberia,  were  the  Government 
to  withdraw  from  regulating  railway  rates  "in  order 
to  conserve  the  interests  of  the  State,  of  the  people, 
of  industry  and  of  trade." 

The  United  States  has  been  confronted  with  the 
same  conflict  of  interests  as  Russia:  the  competi- 
tion of  new,  cheap  lands  with  old,  dear  lands,  and 
Raitid  Ad'ust-  ^^^  demand  of  the  owners  of  the  latter 
ment  to  New  Con-  for  protection.  But  as  there  was  no 
ditiotis  in  the         Qjjg  ^q  whom  to  make  an  effective  ap- 

United  States  ■.  .      .  ,    , 

peal,  no  one  enjoymg  governmental 
authority  upon  whom  pressure  could  be  brought,  — 
Congress  having  steadfastly  declined,  down  to  1886, 
to  regulate  interstate  railway  traffic, — such  demands, 
to  our  infinite  advantage,  were  not  granted.  The 
conflicting  agricultural  interests  of  our  East  and 
West  were  left  to  adjust  themselves  in  accordance 
with  the  natural  working  of  business.  How  exten- 
sive were  the  painful  readjustments  made  necessary 
by  our  national  growth,  and  how  severe  would  have 
been  the  political  pressure,  if  that  could  have  been 
of  any  avail,  is  indicated  by  the  following  facts:  in 
the  20  years  ending  with  1900  the  area  under  wheat 
in  Ohio,  Indiana,  Illinois,  IMichigan,  Wisconsin  and 
Missouri  (which  is  not  that  part  of  the  country  hard- 


RUSSIA  181 

est  hit  by  the  competition  of  the  newer  West)  fell 
from  18,600,000  acres  to  9,000,000  acres,  and  during 
the  same  period  the  area  under  wheat  in  Kansas, 
Nebraska,  Minnesota  and  the  Dakotas  rose  from 
7,200,000  acres  to  17,200,000  acres.  The  extent  of 
the  destruction  of  land  values  in  the  East,  and  of  the 
building  up  of  land  values  in  the  West,  has  been  al- 
most as  enormous  as  has  the  transmutation  in  crops. 
Thus,  in  spite  of  the  great  appreciation  of  land  in 
the  vicinity  of  cities,  which  have  grown  up  very  rap- 
idly in  consequence  of  the  growth  of  the  manufactur- 
ing industries,  and  in  spite  of  the  large  sums  invested 
in  buildings  upon  dairy  farms,  fruit  farms  and  truck 
farms,  the  total  value  of  the  farm  lands,  with  build- 
ings and  improvements,  in  the  States  of  New  York, 
Pennsylvania  and  Ohio,  fell  from  $3,159,000,000 
in  1880  to  $2,823,000,000  in  1900.  But  this  great 
destruction  of  farm  values  in  New  York,  Pennsyl- 
vania and  Ohio,  to  say  nothing  of  that  in  Massachu- 
setts, New  Jersey,  Maryland  and  Delaware,  was  far 
more  than  made  good  by  the  agricultural  develop- 
ment of  the  West  alone,  leaving  out  of  all  account 
the  development  of  other  forms  of  property  value 
in  the  East,  through  the  building  up  of  manufac- 
turing centres  and  trading  centres  dependent  for 
their  existence  upon  the  farming  communities  at  the 
West. 

In  the  period  from  1880  to  1887  the  Russian  rail- 
ways were  learning  to  "compete  for  common  mar- 


182  RAILWAY  RATES 

kets."  There  was  competition  for  the  carriage  of 
grain  for  export  among  the  several  railways  leading 
from  the  interior  to  the  several  Baltic  ports,  and 
competition  between  the  two  sets  of  railway  systems 
leading  from  the  interior  to  the  Baltic  Sea  and  the 
Black  Sea  respectively.  At  that  time  upward  of 
80  per  cent  of  the  railways  were  owned  by  corpora- 
tions, and  throughout  the  greater  portion  of  that 
period  the  Government  exercised  practically  no  con- 
trol over  railway  rates.  The  competition  in  question 
was  not  so  keen  as  it  would  have  been,  had  the  Gov- 
ernment not  guaranteed  to  the  several  railways  cer- 
tain returns  upon  the  capital  invested.  None  the 
less  it  was  rapidly  becoming  more  effective ;  and  in 
course  of  time  it  would  have  become  the  same  power- 
ful force  for  reducing  railway  rates  that  it  has  become 
in  the  United  States. 

When  the  Government  assumed  control  over  rail- 
way rates,  partly  through  acquiring  and  operating 
the  railways  themselves,  partly  through  legislative 
Government  Reg-  regulation,  it  checked  the  dcvelop- 
uiation  drives  ment  of  the  Competition  for  the  mar- 
Traffictothe  ]^g|-^  \]^^  development  of  competition 
between  the  railwavs  and  the  rivers, 
and  the  development  of  the  practice  of  forcing  the 
exploitation  of  the  resources  of  the  country  by  charg- 
ing what  the  traffic  will  bear.  It  is  true  that,  in 
spite  of  the  application  of  these  several  checks,  the 
average  receipts  per  short  ton   mile  have  declined 


RUSSIA  183 

steadily  from  1.176  cents  in  1881  to  0.81 1  cent  in 
1900.  But  under  the  free  play  of  the  commercial 
forces  the  decline  would  have  been  more  rapid :  in 
other  words,  there  would  have  been  a  greater  devel- 
opment of  long-haul  traffic  and  traffic  in  low-value, 
bulky  commodities.  This  statement  is  supported 
by  the  narrative  that  has  gone  before,  as  well  as  by 
the  extraordinary  volume  of  river-borne  traffic  to  be 
found  in  Russia. 

In  the  five  years  ending  with  1900  the  rivers  of 
European  Russia  carried  each  year  on  an  average 
28,900,000  gross  tons  of  freight,  as  against  55,300,000 
tons  carried  by  the  railways.  But  since  the  average 
haul  per  ton  was  518  miles  upon  the  rivers,  and  only 
294  miles  upon  the  railways,  the  average  annual 
river  traffic  was  14,978,000,000  ton-miles,  as  against 
an  average  annual  railway  traffic  of  16,472,000,000 
ton-miles.  In  this  period  the  average  length  of  the 
railways  was  25,800  miles,  and  that  of  the  water- 
ways was  52,000  miles.  But  26,300  miles  of  the 
rivers  were  navigable  only  by  rafts,  or  by  barges 
which  were  floated  down-stream  and  broken  up  at 
the  end  of  the  journey.  Only  25,600  miles  of  river 
were  navigable  by  steamers.  The  important  part 
played  by  the  internal  waterways  in  developing  re- 
sources which  the  railways  cannot  fully  develop  is 
shown  by  the  great  difference  in  the  average  length 
of  haul  upon  the  rivers  and  the  railways  respectively. 
In  the  years  1894-96  the  average  haul  for  naphtha 


184  RAILWAY  RATES 

was  969  miles  upon  the  rivers  and  331  miles  upon  the 
railways ;  for  oats  it  was  906  miles  upon  the  rivers 
and  531  miles  upon  the  railways;  for  rye  flour  it  was 
719  miles  upon  the  rivers  and  406  miles  upon  the 
railways.  Again,  in  1897,  there  were  carried  into  St. 
Petersburg  and  Kronstadt,  by  means  of  the  Volga 
and  the  Marien  canal  system,  4,341,000  gross  tons, 
which  made  an  average  journey  of  400  miles.  Six- 
teen per  cent  of  that  freight  consisted  of  grain,  which 
made  an  average  journey  of  1364  miles  by  river  and 
canal.  In  fact,  the  grain  raised  east  of  the  Volga 
and  north  of  50  degrees  latitude  goes  to  market 
largely  by  way  of  the  Volga  and  the  Marien  canal 
system.  It  is  this  heavy  movement  of  eastern  grain 
up  the  Volga  that  makes  the  aggregate  amount  of 
grain  carried  to  the  seaboard  by  river  equal  to  30-35 
per  cent  of  the  amount  carried  thither  by  rail. 

The  petroleum  industry  at  Baku,  on  the  western 
coast  of  the  Caspian  Sea,  also  depends  greatly  upon 
the  Volga.  In  the  six  years  1896-1901  the  amount 
of  petroleum  carried  by  sea  from  Baku  to  Astrachan, 
and  thence  up  the  Volga,  increased  from  2,817,000 
gross  tons  to  4,750,000  tons.  In  fact,  petroleum 
destined  for  consumption  in  Russia  uses  the  railways 
only  for  the  purpose  of  reaching  points  not  accessible 
by  river.  And  petroleum  destined  for  export  goes 
by  rail  or  pipe  line  to  Batum,  on  the  Black  Sea,  and 
thence  by  vessel.  Though  Russia  sends  to  Germany 
large  quantities  of  petroleum,  the  amount  sent  across 


RUSSIA  185 

the  Prussian  frontier  by  rail  is  less  than  25,000  tons 
a  year. 

About  70  per  cent  of  the  traffic  upon  the  Rus- 
sian rivers  is  carried  by  the  rivers  Volga,  Neva  and 
Dvina,  and  about  50  per  cent  is  carried  by  the  Volga. 
The  traffic  upon  the  last-named  river  increased  from 
8,500,000  gross  tons  in  1891  to  18,000,000  in  1901. 
It  is  carried  at  very  low  rates  and  in  vessels  that 
range  in  capacity  from  165  gross  tons  to  2500  tons. 
The  average  receipts  per  ton-mile  are  about  as  fol- 
lows: for  grain,  0.104  cent;  for  petroleum  and  its 
products,  0.149  cent;  for  iron,  0.180  cent  and  for 
fish,  0.415  cent. 

These  rates  are  very  low.  Nevertheless,  the  rail- 
ways should  before  long  be  able  to  meet  them.  In 
the  period  1892-96  the  Government  roads  reduced 
their  operating  expenses  from  0.657  cent  per  ton- 
mile  to  0.561  cent.  In  that  same  period  they 
reduced  their  expenses  of  "conducting  transporta- 
tion" from  0.294  cent  per  ton-mile  to  0.265  cent. 
Were  they  to  make  a  determined  effort  to  get  the 
traffic  which  now  goes  by  river,  and  to  build  up  new 
traffic  by  forcing  the  development  of  resources  wher- 
ever found,  they  should  be  able  to  develop  a  volume 
of  traffic  which  would  so  reduce  the  cost  of  carrying 
freight  as  to  enable  them  to  meet  the  rates  upon  the 
rivers. 

It  is  to  the  interest  of  the  producers  of  Russia  that 
the  railways  supersede  the  waterways.     In  the  first 


186  RAILWAY  RATES 

place,  the  rivers  are  navigable  only  six  or  seven 
months  in  the  year.  While  they  are  open  to  navi- 
T)ie Producers  gation,  the  prices  of  grain  in  the  dis- 
interest  demands   ^j.j^^g  served  by  rivers  follow  closely 

that  the  Ratltvays  .  .  .         .         , 

supersede  the  the  prices  of  grain  in  the  export 
Waterways  markets  of   the  Black  Sea  and  the 

Baltic  Sea,  though  not  so  closely  as  they  would, 
had  the  competition  between  the  railways  them- 
selves and  the  competition  between  the  railways 
and  the  water\\'ays  developed  a  keener  competi- 
tion among  the  various  ports  of  export.  But  when 
the  rivers  are  closed  to  navigation,  the  prices  of 
grain  in  the  territories  served  by  rivers  frequently 
lose  all  relation  to  the  prices  in  the  ports  of  export. 
Thus,  in  the  period  from  1893  to  1896  the  price  of 
rye,  the  principal  crop,  at  times  fell  to  $1.60  a 
gross  ton  in  the  territory  east  of  the  Volga,  though 
the  monthly  average  price  in  the  Russian  ports  did 
not  at  any  time  fall  below  $13  a  gross  ton.  The 
sensitiveness  of  the  price  of  grain  to  interruptions 
of  transportation  is  shown  also  by  the  fact  that  in 
the  interior  districts  grain  at  times  has  fallen  4.3 
cents  and  more  a  bushel,  in  consequence  of  blocks 
in  the  railway  traffic  occasioned  by  a  lack  of  cars. 

The  Russian  peasant  lives  a  hand-to-mouth  ex- 
istence ;  he  cannot  pay  the  cost  of  insuring  his  crops 
against  fire  during  the  season  of  closed  navigation, 
and  his  taxes  fall  due  shortly  after  the  crops  have  been 
harvested.     These  several  factors  put  him  much  at 


RUSSIA  187 

the  mercy  of  the  local  buyers  of  grain  in  the  season  of 
closed  navigation.  If  the  territory  east  of  the  Volga 
were  better  supplied  with  railways,  there  would  be  a 
steady  demand  the  year  round  for  the  peasant's  grain. 
And  if  the  several  railways  from  the  Baltic  ports  and 
from  the  Black  Sea  ports  were  to  compete  more 
keenly  with  one  another  for  the  carriage  of  the  grain 
raised  in  the  interior,  the  exporters  would  discontinue 
the  practice  of  buying  in  the  places  of  export  from 
local  dealers  shipping  from  the  interior.  They 
would  themselves  buy  directly  of  the  peasants  and 
farmers,  or  they  would  buy  in  the  interior  of  the 
local  dealers.  The  competition  within  this  new  class 
of  buyers  in  the  interior  would  be  much  more  ex- 
tended and  much  keener  than  is  the  competition 
among  the  present  local  dealers ;  and  that  new  and 
increased  competition  would  diminish  the  commis- 
sion charges  for  collecting  and  marketing  grain,  and 
thus  raise  the  price  of  grain  upon  the  farm. 

There  are  further  reasons  why  it  is  not  to  the  inter- 
est of  the  Russian  producer  to  use  waterways  rather 
than  railways.  No  country  can  be  covered  so  com- 
pletely by  canals  and  rivers  as  it  can  be  covered  by 
railways.  On  the  other  hand,  branch  railway  lines 
can  be  made  profitable  only  as  feeders  to  main  lines ; 
they  cannot  be  built  as  feeders  to  rivers. 

Even  in  European  Russia  there  still  are  large  areas 
of  arable  land  which  cannot  be  cultivated  because 
they  have  no  access  to  market.     In  fact,  the  country 


188  RAILWAY   RATES 

has  barely  begun  to  be  supplied  with  railways.  On 
the  other  hand,  the  Russian  Government  is  not  in 
the  position  financially  to  make  vast  capital  outlays 
which  will  be  unremunerative  for  a  number  of  years. 
Therefore  it  cannot  prosecute  with  proper  despatch 
the  work  of  covering  the  country  with  a  net  of  rail- 
ways that  shall  make  it  possible  to  cultivate  the  whole 
of  the  arable  area.  So  far  as  the  Government  shall 
continue  to  allow  the  rivers  to  carry  freight  that  the 
railways  might  carry,  so  far  will  it  handicap  itself  in 
the  performance  of  the  necessary  and  stupendous  task 
of  supplying  Russia  with  the  necessary  railways  — 
a  task  which,  at  best,  it  can  perform  but  inadequately. 


CHAPTER  VIII 

AUSTRALIA 

The  railways  of  New  South  Wales,  Victoria  and 
South  Australia  compete  with  each  other  for  the 
traffic  of  the  "Riverina,"  the  great  wool-producing 
centre  of  Australia.  The  region  in  question  lies 
west  of  longitude  147  degrees,  and  between  the  Mur- 
ray and  the  Darling  rivers,  forming  the  southwestern 
portion  of  New  South  Wales.  The  Riverina  sheep 
grazier  naturally  will  buy  his  supplies  where  he  sells 
his  produce.  Then,  again,  the  storage  and  sale  of 
wool  give  work  to  a  great  many  people  in  the  seaboard 
city  from  which  the  wool  is  exported,  besides  afford- 
ing employment  for  a  large  part  of  the  banking  capi- 
tal of  the  exporting  city.  Loans  upon  consignments 
of  wool,  together  with  loans  upon  sheep  and  upon 
grazing  lands,  constitute  the  foundation  of  the  bank- 
ing business  in  Australia,  and  the  grazier  naturally 
will  obtain  his  loans  where  he  sells  his  produce.  The 
fight  between  the  several  railways  for  the  traffic  to 
and  from  the  Riverina,  therefore,  is  not  so  much  a 
mere  struggle  for  railway  revenue  as  it  is  a  struggle 
between  Melbourne,  Sydney  and  Adelaide  for  com- 
mercial and  financial  supremacy  in  Australia. 


190  RAILWAY  RATES 

It  would  be  a  comparatively  easy  matter  for  the 
railway  managers  of  the  several  colonies  to  agree 
Trade  Rivalries  upon  a  division  of  the  Riverina 
among  the  Colo-  traffic  whlch  would  be  equitable  from 
'""  the  traffic  manager's  viewpoint.     In- 

deed, the  railway  commissioners  of  Victoria,  New 
South  Wales  and  South  Australia,  in  1895,  agreed 
upon  a  division  of  the  traffic ;  but  the  Government 
of  Victoria  refused  to  ratify  the  agreement  or  pool, 
on  the  ground  that  it  would  endanger  the  commercial 
and  financial  interests  of  ]Melbourne.  The  premier. 
Sir  George  Turner,  in  reviewing  the  situation,  some 
three  years  later,  said  "he  doubted  whether  much 
profit  accrued  to  the  Victorian  railways  from  the 
Riverina  trade,  the  traffic  in  question  being  carried 
at  very  low  rates.  But  they  must  consider  this  great 
point:  the  whole  of  the  business  was  transacted  in 
Melbourne  and  not  in  Sydney,  and  the  loss  of  that 
business  would  be  of  far  more  importance  than  the  loss 
of  the  railway  revenue  derived  from  the  business." 

This  Australian  situation  affords  a  complete  paral- 
lel to  one  of  the  most  instructive  chapters  in  the  rail- 
way history  of  the  United  States  —  the  opposition  of 
the  city  of  New  York  to  the  division  of  the  traffic 
between  the  interior  of  the  United  States  and  the 
Atlantic  seaboard,  agreed  upon  from  time  to  time 
by  the  railways  leading  to  the  interior  from  New 
York,  Philadelphia  and  Baltimore,  respectively. 
Long  after  the  railways  from  New  York  into  the 


AUSTRALIA  191 

interior  had  recognized  the  claims  of  the  Philadel- 
phia and  Baltimore  railways  to  a  share  in  the  export 
and  import  trade  of  the  United  States,  New  York 
City,  under  the  leadership  of  the  New  York  Cham- 
ber of  Commerce,  asserted  that  it  had  a  '^natural 
right"  to  the  monopoly  of  the  export  and  import 
trade  of  the  United  States.  Down  to  the  present 
day,  in  season  and  out,  the  New  York  Chamber  of 
Commerce  has  used  its  great  power  to  make  public 
opinion,  for  the  purpose  of  defeating  the  divisions  of 
traffic  agreed  upon  by  the  several  sets  of  railways 
leading  from  the  Atlantic  seaboard  to  the  interior. 
Indeed,  the  two  most  desperate  trunk  line  wars  that 
this  country  has  witnessed  were  due  in  part  to  the 
fact  that  the  management  of  the  New  York  Central 
was  forced  to  convince  the  public  opinion  of  New 
York,  by  means  of  a  fight  to  the  finish,  that  the  Penn- 
sylvania Railroad,  together  with  Philadelphia,  and  the 
Baltimore  and  Ohio  Railroad,  together  with  Baltimore, 
never  would  submit  to  the  abolition  of  the  "differen- 
tials,"—  a  device  designed  to  give  Philadelphia  and 
Baltimore  a  share  in  the  export  and  import  trade. 

Had  the  railways  of  the  United  States  been  under 
effective  control  of  the  federal  Government  in  the 
seventies  and  the  early  eighties,  we  should  have  had 
each  one  of  the  several  groups  of  Senators  and  Rep- 
resentatives from  New  York,  Pennsylvania  and  Mary- 
land making  different  demands  upon  the  federal 
administration ;  and  we  should  have  had  them  mak- 


192  RAILWAY  RATES 

ing  their  support  of  administrative  measures  and 
policy  conditional  upon  the  recognition  of  their 
claims  with  regard  to  the  differentials.  The  ex- 
traordinarily difficult  situation  in  which  the  admin- 
istration would  have  been  placed  is  apparent:  New 
York  would  have  demanded  unconditional  abolition 
of  the  differentials,  Pennsylvania  would  have  de- 
manded one  set  of  differentials,  and  Maryland  would 
have  insisted  upon  another. 

In  Australia  the  question  of  the  adjustment  of  the 
railway  rates  from  the  interior  to  Sydney,  Melbourne 
^     ,  . ., .      ^      and  Adelaide  proved  one  of  the  most 

Coinpetttton  of  ^ 

the  Ports  threat-  stubbornly  Contested  points  in  the  pro- 
ened  to  defeat  ceedings  of  the  Several  conventions 
called  to  frame  a  plan  of  federation. 
In  fact,  Sir  George  Turner,  Premier  of  Victoria,  and 
]\Ir.  G.  H.  Reid,  Premier  of  New  South  Wales,  had 
to  have  recourse  to  distinguishing  between  prefer- 
ential rates  and  differential  rates.  They  put  into 
the  federal  constitution  clauses  forbidding  prefer- 
ential rates  and  sanctioning  differential  ones,  de- 
fining a  preferential  rate  as  illegitimate,  because 
aiming  to  give  one  city  traffic  that  properly  belonged 
to  another,  and  defining  a  differential  rate  as  a  legiti- 
mate reduction  in  rates  made  in  order  to  develop 
traffic.  They  also  established  a  body,  on  the  pattern 
of  our  Interstate  Commerce  Commission,  endowed 
with  power  to  say  whether  any  rate  complained  of 
is  preferential  and  therefore  illegitimate,  or  differen- 


AUSTRALIA  193 

tial  and  therefore  legitimate.  In  this  way  Sir  George 
Turner  and  Mr.  Reid  ghded  over  a  difficulty  that 
threatened  to  prevent  federation.  But  they  merely 
postponed  the  day  of  reckoning ;  for  it  is  not  within 
the  power  of  man  to  prove  to  the  satisfaction  of  each 
one  of  two  or  more  rival  cities  when  a  rate  ceases  to 
be  a  differential  rate  and  becomes  a  preferential  one. 
•  Even  more  important  in  securing  the  adoption  of 
federation  was  the  provision  that  each  colony  should 
retain  in  its  own  hands  the  management  of  its  rail- 
ways. Under  that  arrangement  Victoria  can  con- 
tinue to  put  penalizing  rates  on  grain  sent  from 
northwestern  Victoria  to  Adelaide,  as  well  as  on 
merchandise  brought  from  Adelaide  into  northwest- 
ern Victoria.  New  South  Wales  can  continue  to 
put  penalizing  rates  on  traffic  sent  by  rail  from  Vic- 
toria into  New  South  Wales.  It  can  also  continue 
to  refuse  to  connect  its  Riverina  railway  lines  with 
the  Victorian  lines  to  Melbourne,  or  to  allow  private 
enterprise  to  make  the  connections,  thus  forcing  the 
people  of  the  Riverina  to  reach  the  Victorian  lines  by 
means  of  wagons  drawn  by  horses  or  by  means  of 
the  small  craft  that  can  navigate  the  Darling,  the 
Murray,  the  Murrumbidgee  and  the  Lochlan  rivers. 
In  this  last  respect  New  South  Wales  still  stands 
where  the  United  States  stood  some  30  to  50  years 
ago,  when  Pennsylvania  refused  the  Baltimore  and 
Ohio  Railroad  access  to  Pittsburg,  lest  Baltimore 
should  take  trade  from  Philadelphia ;  and  the  Legis- 


194  RAILWAY  RATES 

lature  of  New  York  ordered  that  the  State-aided 
Erie  Railroad  should  begin  at  a  point  25  miles  from 
New  York  City,  lest  Jersey  City  should  derive 
benefit  from  the  railway. 

Turning  from  the  railway-rate  situation  in  the 
field  of  interstate  trade  and  traffic  in  Australia,  we 
find  within  the  several  States  rigid  adherence  to  a 
Tapering  Rates  systcm  of  tapering  rates  which  has  re- 
concentrate  Trade  sulted  in  a  remarkable  concentration 
a7id  Population  on  of  trade  and  industry  in  the  leading 
seaboard  city  of  each  State.  To  illus- 
trate :  if  the  railway  charge  be  one  cent  per  ton-mile 
for  the  first  50  miles,  0.5  cent  for  the  second  50  miles 
and  0.3  cent  for  the  third  50  miles,  the  average  charge 
per  ton-mile  for  a  shipment  of  150  miles  will  be  0.6 
cent.  That  will  be  the  cost  to  a  merchant  located 
in  some  small  town  150  miles  in  the  interior  who 
makes  a  purchase  in  Melbourne.  If  that  same 
merchant  buys  of  a  wholesale  dealer  located  in  a 
town  100  miles  in  the  interior,  he  will  have  to  pay 
at  the  rate  of  one  cent  per  ton-mile  for  50  miles. 
But  the  wholesale  dealer  who  had  purchased  in 
^lelbourne  had  already  paid  a  freight  charge  of 
0.75  cent  per  ton-mile  to  have  the  freight  brought 
from  Melbourne.  Hence,  by  the  time  the  com- 
modities purchased  of  the  wholesaler  located  100 
miles  in  the  interior  will  have  reached  the  mer- 
chant located  150  miles  in  the  interior,  they  will 
have  paid  an  average  charge  of  0.83  cent  per  ton- 


1 

I 


AUSTRALIA  195 

mile,  as  against  an  average  charge  of  0.6  paid  by 
commodities  purchased  directly  in  Melbourne.  It 
is  obvious  that,  under  these  conditions,  it  will  be  im- 
possible to  establish  a  distributing  trade  in  the  inter- 
mediate interior  towns.  And  that  has  been  precisely 
the  experience  of  each  Australian  colony.  For  ex- 
ample, when  the  railways  of  Victoria  terminated  at 
Ballarat,  100  miles  in  the  interior,  that  town  had  a 
considerable  wholesale  trade,  the  commodities  being 
distributed  by  horse  and  wagon  to  the  smaller  in- 
terior towns.  But  when  the  railways  were  extended 
beyond  Ballarat,  it  became  more  profitable  for  the 
merchants  of  the  smaller  towns  beyond  Ballarat  to 
purchase  in  Melbourne.  Ballarat  lost  its  distribut- 
ing trade,  and  its  more  ambitious  wholesale  mer- 
chants removed  to  Melbourne.  Similarly,  the 
manufacturers  who  were  located  at  Ballarat  and  had 
to  pay  a  comparatively  high  average  ton-mile  charge 
on  the  imported  raw  material  which  they  used,  as 
well  as  a  comparatively  high  ton-mile  charge  on  the 
finished  product  produced,  found  it  impossible  to 
compete  with  the  Melbourne  manufacturers,  who 
shipped  their  finished  product  at  a  comparatively 
low  ton-mile  charge.  The  result  was  that  those 
manufacturers  who  had  an  ambition  to  manufacture 
for  the  trade  of  the  colony,  as  a  whole,  also  moved 
to  Melbourne.  And  this  movement  of  trade  and 
industry  to  the  seaboard  cities  is  in  large  part  re- 
sponsible for  the  extraordinary  concentration  of  the 


196  RAILWAY  RATES 

people  of  Australia  in  a  few  cities,*  —  a  concentra- 
tion which  Mr.  Reid  has  called  ''the  curse  of  Aus- 
tralia," because  it  enables  the  people  of  a  few 
overgrown  cities  to  make  the  laws  of  a  country  whose 
resources  are  mainly  agricultural  and  pastoral. 

The  railways  of  the  United  States  began  with  a 
system  of  tapering  rates.  But  the  necessity  of  meet- 
ing water  competition  at  certain  points,  and  the 
Decetitralization  competition  between  the  railways 
encouraged  by  the    themselves  at  Others,  soon  led  to  wide 

Basing  Point  Sys- 
tem in  the  United  departures  from  such  a  scheme  —  to 

States  the  making  of  competitive  rates  which 

grew  in  time  into  the  "  basing  point "  system.     Under 

that  system  the  rates  from,  say.  New  York  to  Atlanta, 

a  basing  point,  will  be  so  low  that  the  sum  of  the 

through  rate  from  New  York  to  Atlanta,  plus  the 

local  rate  from  Atlanta  to  any  point  within,  say,  loo 

miles,  will  not  exceed  the  direct  through  rate  from 

New  York  to  that  point.     In  other  words,  within  a 

certain  radius  of  Atlanta,  the  wholesale  merchant 

of  that  city  will  be  on  a  footing  of  equality  with  the 

wholesale  merchant  of  New  York.     The  wholesale 

trade  of  New  York  will  be  decentralized  —  that  is, 

a  part  of  it  will  be  transferred  from  New  York  to 

Atlanta. 

The  basing  point  system  has  been  a  tremendous 

*  In  1901  there  were  living  in  Sydney,  36  per  cent  of  the  population 
of  New  South  Wales  ;  in  Melbourne,  41  per  cent  of  the  population  of 
Victoria ;  and  in  Adelaide,  45  per  cent  of  the  population  of  South 
Australia. 


AUSTRALIA  197 

force  in  decentralizing  the  trade  and  industry  of  this 
country,  in  building  up  trading  and  manufacturing 
cities  in  the  South,  the  Middle  States,  the  Southwest, 
the  West  and  the  Northwest.  The  system  frequently 
involves  the  violation  of  the  so-called  "long-  and 
short-haul  principle,"  and  for  that  reason,  with  others, 
it  has  been  disapproved  by  the  Interstate  Commerce 
Commission.  On  the  other  hand,  it  is  well  known 
that,  so  far  as  that  body  succeeded  in  breaking  down 
the  basing  point  system,  it  drove  trade  from  the 
interior  distributing  centres  to  Chicago,  New  York 
and  the  other  Atlantic  seaboard  cities.  In  fact,  the 
most  radical  reduction  in  railway  rates  ordered  by 
any  State  Legislature  down  to  1888  was  prompted 
largely  by  the  desire  to  protect  the  jobbing  centres 
of  a  Middle  Western  State  against  the  loss  of  trade  to 
Chicago  resulting  from  the  partial  enforcement  of 
the  long-  and  short-haul  clause  of  the  act  to  regulate 
commerce.  It  is  well  known,  also,  that  the  mer- 
chants of  New  York  and  Chicago  would  like  to  see 
the  Interstate  Commerce  Commission  succeed  in 
its  efforts  to  break  up  the  basing  point  system,  for 
they  know  that  the  present  wholesale  trade  of  the 
basing  points  would  then  come  to  them. 

The  basing  point  system  has  another  great  merit 
besides  that  of  decentralizing  population :  it  enables 
the  railways  to  effect  great  economies  in  the  cost  of 
conducting  transportation.  In  the  absence  of  bas- 
ing points,  freight  has  to  be  carried  over  long  distances 


198  RAILWAY   RATES 

from  the  sources  of  supply  irregularly  and  in  small 
lots.  The  establishment  of  basing  points  makes 
The  Economy  of  possible  the  bunching  together  of 
the  Basing  Point  these  Small  and  irregular  bits  of 
System  traffic   into   huge   train-loads,   which 

are  handled  with  the  greatest  economy.  It  limits  the 
costly  traffic  of  small  volume  and  intermittent  flow 
to  the  relatively  short  hauls  from  the  basing  points  to 
the  points  of  consumption.  Even  in  the  absence 
of  the  exigencies  of  competition,  it  would,  therefore, 
be  to  the  interest  of  the  railways  to  establish  such 
points  for  the  preliminary  concentration  of  trafl&c 
which  comes  from  distant  sources  of  supply  and 
which  is  ultimately  to  be  distributed  among  a  scat- 
tered population.  Such  a  device  also  serves  the 
interest  of  the  public  at  large;  for,  by  increasing 
the  margin  of  profit  of  the  railways,  it  encourages 
railroad  building,  especially  in  the  thinly  settled  por- 
tions of  the  country.  Everybody  in  the  United 
States  to-day  would  have  poorer  railway  facilities, 
and  less  of  them,  for  getting  his  product  to  market, 
had  the  railways  all  along  been  hampered  in  handling 
traffic  in  these  ways  which  realized  savings  and  in- 
creased the  margin  of  profit  on  railways  built  ahead 
of  traffic. 

One  of  the  reasons  for  the  ridiculously  low  aver- 
age of  the  train-load  in  Australia  —  74  tons  in  New 
South  Wales  —  is  the  comparative  absence  of  in- 
terior jobbing  centres,  with  the  resulting  necessity 


AUSTRALIA  199 

of  distributing  freight  from  the  seaboard  cities  in 
small  and  intermittent  amounts.  Small  train-loads, 
on  the  other  hand,  mean  high  operating  expenses, 
large  deficits  in  the  Railway  Department,  heavy  bur- 
dens upon  the  taxpayers  and  the  postponement  of 
the  day  when  the  country  at  large  shall  be  adequately 
supplied  with  transportation  facilities. 

Time  and  again  the  merchants  and  manufac- 
turers of  the  interior  towns  of  New  South  Wales 
have  appealed  to  Parliament  for  relief  from  the 
effects  of  the  present  practice  as  to  railway  charges. 
They  have  asked  that  the  principle  embodied  in  the 
"milling  in  transit"  rates  on  grain  and  flour,  and  in 
the  "scouring  in  transit"  rates  on  wool,  be  extended 
to  merchandise  in  general.  The  inbreak  journey" 
rates  demanded  would  allow  merchants  at  interior 
towns  to  bring  merchandise  from  Sydney,  store  it 
in  their  warehouses,  and  reship  it  to  smaller  towns 
farther  inland  at  rates  which  would  not  exceed  the 
direct  rate  from  Sydney  by  more  than  a  small  ter- 
minal charge  for  unloading  and  loading  at  the  inter- 
mediate city.  But  the  Government  thus  far  has 
refused  to  grant  the  relief  demanded,  partly  because 
it  fears  that  "break  journey"  rates  would  give  rise 
to  extensive  frauds,  partly  because  it  fears  the  oppo- 
sition of  the  Sydney  merchants  and  manufacturers. 

In  the  other  colonies  the  situation  is  similar  to  that 
in  New  South  Wales.  In  Victoria,  indeed,  there  has 
arisen  of  late  a  further  and  highly  instructive  devel- 


200  RAILWAY  RATES 

opment  of  the  past  situation.  In  1895  the  Minister 
of  Railways,  Mr.  Williams,  admitted  that  the  Railway 
Department  was  favoring  certain  Melbourne  manu- 
facturers, as  against  the  manufacturers  of  the  interior 
towns,  because  of  the  problem  of  the  unemployed 
in  the  metropolis. 

The  merchants  and  manufacturers  of  Melbourne, 
Sydney  and  Adelaide  oppose  any  measures  that 
would  decentralize  trade  and  industry,  just  as  the 
merchants  of  New  York  City  always  have  opposed 
the  practices  by  means  of  which  the  American  rail- 
ways have  decentralized  the  trade  that  originally 
was  the  monopoly  of  the  seaboard  cities.  But  there 
is  this  difference  between  Australia  and  the  United 
States.  In  Australia,  under  Government  owner- 
ship, the  interests  of  a  powerful  class  have  prevailed, 
to  the  detriment  of  the  country  at  large ;  in  America 
the  interests  of  that  same  class  had  to  yield  to  the 
interests  of  the  country  at  large,  as  a  compromise 
between  conflicting  interests.  Such  a  solution,  how- 
ever, can  be  secured  only  under  that  free  play  of 
commercial  forces  which  is  the  distinguishing  char- 
acteristic of  those  countries  in  which  the  industries 
are  in  the  hands  of  private  enterprise,  and  are  sub- 
jected to  the  minimum  of  governmental  regulation. 


PART  II 

THE   UNITED   STATES 


I 


i 


i 


CHAPTER  I 

THE  DEVELOPMENT  OF  THE  WEST 

When  the  Civil  War  came  to  an  end,  the  various 
industries  of  the  United  States  had  to  provide  employ- 
ment for  the  disbanded  armies  of  the  North  and  the 
South.  Scarcely  had  this  readjustment  from  a  war- 
footing  to  a  peace-footing  been  effected  when  there 
came  a  wave  of  immigration  which  contributed  about 
40  percent  of  the  increase  of  population  from  1867  to 
1873.  Finally,  in  the  year  last  mentioned,  occurred 
the  memorable  financial  crash,  the  result  of  specula- 
tion in  many  lines  of  industry  carried  to  ever  higher 
and  higher  extremes  after  the  close  of  the  war.  The 
extent  of  the  depression  which  followed  is  indi- 
cated by  the  course  of  the  imports,  which  fell  from 
$621,000,000  in  1873  to  $518,000,000  in  1875,  and  to 
$447,ooo,ot)0  in  1876.  Three  years  later,  in  1879, 
our  imports  were  only  $426,000,000.  This  pro- 
tracted period  of  liquidation  in  turn  necessitated  a 
readjustment  of  our  industries  and  a  redistribution 

of  our  population  on  an  enormous  scale. 

203 


204 


RAILWAY   RATES 


The  great  factors  in  our  economic  progress  in  this 
eventful  period  from  1867  to  1880  were  railroad  build- 
ing,   with    its    dependent    industries, 
jseof    e  ^^^     j.j^^     expansion    of     farming* 

Western  Farmer  ^  o 

During  these  years  the  great  corn 
and  wheat  raising  States  of  Ohio,  Indiana,  Illinois, 
Michigan,  Wisconsin,  Minnesota,  Iowa,  Missouri, 
Kansas  and  Nebraska  increased  their  area  under 
corn  and  wheat  by  39,000,000  acres,  the  equivalent 
of  70  per  cent  of  the  increase  of  the  area  under  crops 
of  all  kinds  in  the  United  States.  In  the  decade  end- 
ing with  1880  the  ten  States  in  question  increased  in 
population  by  4,400,000,  which  was  225,000  in  excess 
of  the  total  number  of  immigrants  into  the  United 
States  during  this  decade  and  the  three  years  preced- 
ing.f  By  1873  the  railways  and  the  westward  move- 
ment of  population  had  reached  points  over  500  miles 
from  the  Great  Lakes.  There  were  men  of  no  mean 
authority  who  feared  that  many  years  must  elapse 
before  the  eastern  portion  of  the  country  would  be 

*  United  States  Census  Reports. 

Increase  in  the  Number  of  Persons  making  a  Living  in  the 
Subjoined  Callings 


1871-80 


1881-90 


Agriculture 

Trade  and  transportation 

Manufacturing,  mining  and  the  mechanical 
industries 


1,748,000 
619,000 

1,130,000 


798,000 
1,294,000 

1,667,000 


t  Statistical  Abstract  of  the  United  States,  1887. 


THE   DEVELOPMENT   OF   THE   WEST  205 

able  to  consume  the  wheat  that  was  being  raised 
in  the  West,  and  that  the  cost  of  transporting 
this  wheat  to  the  Atlantic  seaboard  would  preclude 
its  exportation  to  Europe.  Thus,  in  1874  the  "Penn- 
sylvania Railroad  Investigating  Committee,"  which 
included  among  others  Mr.  John  A.  Wright,  reported 
that  it  was  out  of  the  question  for  the  West  to  think 
of  depending  on  England  as  a  market  for  its  prod- 
uce and  as  a  place  in  which  to  purchase  its  manu- 
factured articles.  It  was  not  much  less  out  of  the 
question  for  the  West  to  depend  on  the  Middle  States 
and  the  East  for  the  sale  of  its  produce  and  the 
purchase  of  its  supplies.  The  salvation  of  the  west- 
ern farmer  was  to  move  eastward  or  to  draw  the 
eastern  manufacturer  to  the  West.  The  grower  of 
grain  and  the  manufacturer  of  commodities  must  be 
brought  closer  together ;  the  valleys  of  the  Ohio  and 
the  Mississippi  must  become  the  great  workshops  of 
the  United  States.  In  that  way  alone  could  a  mar- 
ket be  created  for  the  agricultural  products  of  the 
West.  The  report  under  consideration  added  that, 
the  land-grant  railways  and  the  railways  built  on 
speculation  having  been  carried  to  the  extreme  verge 
of  population,  desperate  efforts  had  been  made  to 
settle  people  along  their  lines.  The  stockholders 
would  support  the  policy  of  making  railway  rates 
that  were  below  the  cost  of  carriage  long  enough  to 
enable  them  to  sell  their  lands  or  to  get  rid  of  their 
stock,  but  no  longer.     Moreover,  even  if  that  policy 


206  RAILWAY  RATES 

should  be  continued,  it  would  but  increase  the  evil 
of  a  farming  population  that  reached  beyond  the 
point  where  a  living  could  be  made  by  farming  * 

TJie  Railroad  Gazette  commented  that  this  state- 
ment was  one  which  had  been  much  needed.  It 
was  too  true,  it  observed,  that  people  generally,  in- 
cluding many  railroad  men  who  should  have  known 
better,  had  taken  it  for  granted  that,  when  a  railroad 
gave  access  to  any  part  of  our  unoccupied  territory, 
it  removed  the  only  or  chief  obstacle  to  the  rapid 
growth  of  the  district  in  question  to  a  condition  like 
that  of  Ohio,  Illinois  or  eastern  Iowa.  The  farmers 
had  not  given  sufficient  consideration  to  the  cost  of 
transporting  agricultural  produce  by  rail;  but  they 
were  beginning  to  learn,  and  no  longer  flocked  to  the 
''borders"  as  they  once  had  done.  They  were 
learning,  also,  to  adjust  their  industry  to  their  cir- 
cumstances, and  the  more  western  ones  were  not 
thinking  of  raising  anything  for  the  distant  markets 
but  cattle  and  sheep.  Kansas  and  Nebraska  were 
shipping  cattle,  rather  than  grain ;  and  upon  the  Cen- 
tral PacL&c  and  the  Union  Pacific  Railroads  wool  was 
the  principal  item  of  through  freight.  Mr.  Charles 
Francis  Adams,  Jr.,  who  for  many  years  shared  with 
Mr.  Albert  Fink  the  distinction  of  being  the  fore- 
most writer  on  railway  questions,  also  was  of  the 
opinion  that  the  farmer  had  gone  "too  far  west." 

In  1876,  two  years  after  the  foregoing  gloomy 

*  Tht  Railroad  Gazette,  October  3,  1874. 


THE   DEVELOPMENT   OF  THE   WEST 


207 


opinions  had  been  expressed,  the  surplus  labor  of 
Industrial  Read-  the  Eastern  States,  thrown  out  of 
justment  aided  by  employment  by  the  industrial  de- 
the  Railways  pression,  began  to  move  westward  in 
such  proportions  as  to  attract  attention.  This  mi- 
gration took  place  to  the  farming  States  where  cheap 
land  could  be  obtained,  notwithstanding  that  in 
that  year  the  farm  prices  of  wheat  and  the  other 
cereals  were  from  lo  to  30  per  cent  below  the  level  of 
1873,  the  marked  decline  in  price  having  first  taken 
place  in  1874.  In  1877  and  1878  the  movement 
of  population  into  the  West  from  the  New  Eng- 
land States,  New  York,  New  Jersey  and  Pennsyl- 
vania reached  large  proportions,  and  was  estimated 
at  upward  of  400,000  persons.*  The  farm  price  of 
wheat  was  still  28  per  cent  below  the  price  of  1873, 
and  the  farm  prices  of  the  other  cereals  were  from 
25  to  30  per  cent  below  the  level  of  that  year.  In 
1877  and  1878,  moreover,  the  United  States  received 
55  per  cent  of  the  emigrants  who  left  Europe  by  way 
of  the  ports  of  the  United  Kingdom;    and  in  1879 

*  The  Economist :  Commercial  History  and  Review  of  i8yg. 
Sales  of  Lands  in  Millions  of  Acres 


1872  . 

1875  . 

1876  . 
1878  . 


United  States 
Government  Lands 


7.12 

3-71 
4.26 

7-56 


Railroad  Lands 


I. GO 
0.85 
I. ID 


Texas  State  Lands 


1.00 
1. 00 
1.50 
3-50 


208  RAILWAY   RATES 

and  1880  the  percentage  rose  successively  to  62  and 
77  —  that  is,  to  within  three  points  of  the  high  level 
reached  in  187 1  and  1872,  before  the  years  of  depres- 
sion *  A  large  part  of  these  people  also  had  to  find 
homes  on  the  unoccupied  farming  lands  of  the  West. 
This  meant  that  the  produce  of  their  farms  must  be 
largely  exported  to  Europe,  if  they  were  to  find  any 
outlet  at  all ;  for  obviously  the  domestic  market  was 
wholly  inadequate. 

In  the  five  years  from  1867  to  1872  the  United  States 
had  exported  15.5  per  cent  of  the  wheat  which  it  had 
Western  Farm  ^^^^ed ;  but  in  the  period  from  1873  to 
Products  con-  1878  the  proportion  rose  to  24.6  per 
guer  European  cent,  and  in  the  five  years  ending  with 
1883  it  was  not  less  than  34.9  per  cent,  t 
Acting  as  the  most  powerful  factor  in  the  accom- 
plishment of  this  great  increase  of  exports  of  wheat 
was  a  decline  in  railway  rates.  Under  the  stress  of 
a  severe  financial  embarrassment  of  the  railways  in 
general,:!:  and  the  pressure  of  a  tremendous  competi- 

*  Copy  of  Statistical  Tables  relating  to  Emigration  and  Immigration 
from  and  into  the  United  Kingdom  in  the  Year  igoo,  and  Report  to  the 
Board  of  Trade  thereon. 

t  The  Summary  of  Commerce  and  Finance  for  January,  igoo,  Wash- 
ington :  Government  Printing  Office. 

X  Percentage  of  the  total  railway  mileage  of  the  United  States  in  the 
hands  of  receivers :  — 

1874 3-31 

1875 8.87 

1876 16.58 

1877 18.19 

1878 1642 

1879 15-51 

1880 11.67 

1883 1.83 


THE   DEVELOPMENT   OF   THE   WEST 


209 


tion  between  the  railways  leading  from  the  farming 
regions  to  the  rival  primary  grain  markets,  and  from 
these  markets  to  the  rival  export  cities  on  the  Atlantic 
seaboard,  transportation  charges  fell  even  more  rap- 
idly than  the  farm  prices  of  agricultural  products  * 

Thus  was  solved  the  great  problem  of  enabling 
the  farmer  in  the  interior  of  America  to  earn  a  living 
by  raising  produce  for  sale  in  a  most  distant  market. 


*  Changes  in  the  Rates  of  Charge  for  Railway  and  Other  Transporta- 
tion Services,  H.  T.  Newcomb  and  E.  J.  Ward,  Jr. 


Average  Revenue 

Farm  Pricks 

FROM  Freight  per  Ton 
PER  Mile  Carried 

Average  of  1867 
to 

Corn 

Wheat 

Oats 

1872 

100 

100 

100 

100 

^^n 

91 

99 

91 

88 

1874 

120 

80 

123 

83 

1875 

76 

83 

84 

78 

1876 

70 

89 

85 

67 

1877 

72 

98 

74 

70 

1878 

65 

72 

64 

71 

1879 

77 

102 

87 

63 

1880 

81 

88 

94 

67 

1881 

131 

no 

121 

65 

1882 

100 

81 

98 

60 

1885 

67 

71 

75 

55 

1890 

104 

77 

III 

51 

1895 

52 

47 

52 

46 

1900 

73 

57 

68 

40 

Compare  also :  R.  H.  B.odkQx  in  Journal  of  the  Royal  Statistical  Society, 
December,  1900. 

Difference  between  the  Gazette  (London)  Price  of  Wheat  and 
THE  Nebraska  Farm  Price,  per  Quarter 

1870-74  .... 
1875-79  .... 
1880-84  .... 


29J.     gd. 

1885-89     .     .     . 

.     .     115.  2,d. 

22)S.    td. 

1890-94    .     .     . 

.     .       9J.  6d. 

i6s.  lid. 

1895-99    .     .     . 

.     .     lis,  2d. 

210  RAILWAY   RATES 

The  huge  disbanded  armies,  the  hosts  of  immigrants, 
the  vast  bodies  of  men  in  the  Eastern  States  forced  by 
a  period  of  drastic  liquidation  and  readjustment  to 
procure  new  means  of  livelihood  —  all  were  absorbed 
without  serious  or  long-continued  impediment,  al- 
though at  times  the  difficulties  looked  insurmount- 
able. 

The  fact  of  leading  importance  in  the  rapid  expan- 
sion of  farming  in  the  United  States  during  the  period 
under  consideration  is  that  it  had  to  be  effected  by 
means  of  so-called  one-crop  farming,  for  export,  with 
falling  prices.  The  settlers  upon  fresh  lands  had 
pushed  westward  so  rapidly  that  they  would  have 
had  to  wait  many  years  for  the  development  of  a 
local  market,  through  the  growth  of  a  local  manufac- 
turing and  commercial  population.  But,  in  the 
absence  of  a  local  market,  diversified  farming  was 
impracticable.*  It  had  been  necessary,  therefore,  to 
have  recourse  to  one-crop  farming — to  the  raising  of 
wheat  in  the  West  and  Northwest,  the  growing  of 
corn  in  the  Southwest  and  the  planting  of  cotton  in 
the  South. 

Again,  a  large  part  of  these  crops  has  had  to  be 
exported,  for  our  frontier  has  expanded  out  of  pro- 
portion to  the  growth  of  the  manufacturing  popula- 
tion in  the  East.  Since  1880  the  country  as  a  whole 
has  exported  each  year  from  21  to  41  per  cent  of  the 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products, 


THE   DEVELOPMENT   OF   THE   WEST 


211 


wheat  which  it  has  raised,  the  average  being  32  per 
cent.  In  these  same  years  the  leading  surplus  wheat- 
producing  States  of  Kansas,  Nebraska,  Minnesota 
and  the  Dakotas  have  had  to  find  in  the  South,  upon 
the  Atlantic  seaboard  and  in  Europe  a  market  for 
not  less  than  85  per  cent  of  their  crop. 

In  Europe  there  has  been  naturally  a  large  and 
growing  demand  for  American  wheat,  because  of  the 
rapid  growth  of  population  consequent  upon  far- 
reaching  improvements  in  the  industrial  arts  and  the 
progressive  development  of  new  markets  in  all  parts 
of  the  world.  But,  in  order  that  the  demand  in  Eu- 
rope might  grow  rapidly  enough  to  keep  pace  with 
the  increase  of  our  western  wheat-raising  area,  it  has 
been  necessary  to  force  that  demand.  This  has  been 
accomplished  by  the  creation  of  new  uses  for  wheat, 
and  by  causing  lands  in  Europe  to  go  out  of  culti- 
vation for  purposes  of  wheat  raising.*  There  has 
been  a  considerable  substitution  of  wheat  for  potatoes, 

*  Statistical  Abstract  for  the  United  Kingdom  :  — 
Great  Britain 


Total  Area 
under  the  plough 


Area  under 
Wheat 


Area  under 
Barley 


Area  under 
Permanent  Pasture 


1875 
1902 


Acres 
18,104,000 
15,164,000 


Acres 
3,342,000 
1,726,000 


2,510,000 
1 ,909,000 


Acres 
13,312,000 
16,807,000 


Before  the  British  Royal  Commission  on  Agriculture,  1896,  Sir  Alfred 
Milner  and  Sir  Robert  Giffen  testified  that  the  American  competition  had 
reduced  the  value  of  the  farm  lands  of  the  United  Kingdom  from  ^10,037,- 
000,000  in  1874  to  ^5,009,000,000  in  1894. 


212  RAILWAY  RATES 

rye  and  barley  as  an  article  of  human  diet  and  an  in- 
crease of  its  use  for  the  feeding  of  animals.  What 
has  added  to  the  difficulty  of  the  task  of  obtaining  an 
increased  outlet  for  wheat  in  Europe  has  been  that, 
with  the  raising  of  the  standard  of  living  during  the 
last  half  century,  there  has  occurred  a  substitution  of 
meat  —  of  beef,  pork  and  mutton  imported  from 
the  United  States,  the  Argentine  Republic,  New  Zea- 
land and  Australia — for  wheat  in  the  richer  countries 
as  an  article  of  diet*  Also,  with  most  of  the  coun- 
tries of  Europe  tariff  barriers  against  the  import  of 
wheat  have  been  raised  from  time  to  time.  The 
means  of  waging  the  fight  for  an  enlarged  European 
market  for  wheat  has  been  the  making  of  lower 
prices;  and  for  the  United  States  in  particular  this 
has  had  to  be  done  in  competition  with  Russia  and 
Argentina,  which  are  also  surplus  countries,  with 
new  and  cheap  areas  coming  under  cultivation. 

The  fall  in  the  price  at  which  American  wheat 
has  been  laid  down  in  Europe  —  a  necessary  occur- 
rence, if  our  wheat-raising  frontier  was  to  expand 
with  any  great  rapidity  —  has  been  offset  for  the 
American  farmer  to  a  considerable  extent  by  reduc- 
tions in  the  cost  of  raising,  harvesting  and  market- 
ing. Mr.  Edward  Atkinson  has  estimated  at  66 
cents  the  saving  effected  from  1873  to  1887  in  the 
cost  of  growing  a  bushel  of  wheat  in  the  United 

*  Sir  Robert  Giffen :  the  real  agricultural  development  of  the  last 
twenty  years  in  Appendix  to  the  Final  Report  of  her  Majesty's  Commis- 
sioners appointed  to  inquire  into  the  Subject  of  Agricultural  Depression. 


THE   DEVELOPMENT   OF   THE   WEST  213 

States,  carrying  it  1 200  to  1 500  miles  by  rail,  and  by 
lake  and  rail,  to  the  Atlantic  seaboard,  and  thence 
by  vessel  to  Liverpool.  Not  less  than  50  per  cent  of 
that  saving  Mr.  Atkinson  attributed  to  the  reduction 
made  in  the  charge  for  carrying  the  wheat  to  the 
Atlantic,  25  per  cent  to  the  reduction  in  the  charges 
for  ocean  transportation  and  only  10  per  cent  to 
the  reduction  brought  about  in  the  cost  of  planting 
and  harvesting.* 

To  this  subject  of  the  fall  of  the  price  of  wheat  in 
the  European  market,  and  the  means  and  extent  to 
™,    r  ,   ,  ■  J      which  the  fall  has  been  offset  to  the 

j/te  Inaustrial 

East  depetident  American  producer,  reference  will 
on  the  Agrtcul-  again  be  made  in  the  following  chapter. 
For  the  present  it  is  desirable  to  empha- 
size an  important  collateral  effect  of  these  economies. 
Notwithstanding  the  necessary  fall  of  price  in  Europe, 
the  American  price  has  been  sufficiently  sustained  to 
enable  the  West  not  only  to  be  rapidly  settled,  but 
to  be  settled  by  a  well-to-do  population.  This  pros- 
perous addition  to  the  non-manufacturing  portion  of 
our  population,  spread  over  a  vast  area  of  common 
nationality,  has  given  the  American  miner  and  man- 
ufacturer the  largest  and  most  rapidly  expanding 
free-trade  market  in  the  world,  and  has  been  a  factor 
in  the  industrial  development  of  the  United  States 
no  less  significant  than  the  richness  of  our  mineral 

*  Royal  Commission  on  Agriculture,  Minutes  of  Evidence,  Vol.  II: 
testimony  of  Mr.   Edward  Atkinson. 


214  RAILWAY   RATES 

resources.  It  has  been  an  extraordinary  aid  to  our 
development  as  a  manufacturing  nation  that  we 
have  been  able  to  draw  from  Europe  millions  of 
people  who  have  given  us  here  on  our  own  soil,  and 
additional  to  the  increase  of  our  own  population,  a 
market  for  the  products  of  our  mines  and  factories. 
Had  we  been  obliged  to  take  the  first  steps  toward 
becoming  a  great  nation  of  manufacturers  by  finding 
through  export  a  market  for  a  large  part  of  our  manu- 
factured products  among  these  peoples  in  their  own 
countries,  surrounded  by  high  customs  barriers 
and  other  impediments,  we  should  have  experienced 
much  greater  difficulties  in  attaining  our  present  posi- 
tion. The  first  steps  having  been  made  in  our  ex- 
panding, unrestricted  and  familiar  home  market,  we 
now  go  forward  to  leadership  in  the  export  of  manu- 
factures to  the  world's  market  as  well. 

The  efficient  working  together  of  the  various  fac- 
tors of  this  phase  of  our  economic  history  is  not  to  be 
taken  for  granted.  Had  it  not  been  for  the  right 
adjustment  of  transportation  charges,  the  country 
might  have  been  held  in  the  iron  grip  of  stagnation. 
It  was  not  enough  that  we  had  great  natural  re- 
sources, and  that  the  invention  of  the  railway  intro- 
duced a  new  factor.  Europe  as  a  whole  has  both. 
If  we  had  depended  on  these  things,  it  is  perfectly  pos- 
sible that  the  prairies  would  still  wave  with  grass  for 
the  food  of  buffaloes,  instead  of  with  fields  of  grain  for 
the  consumption  of  millions  of  human  beings.     At 


THE   DEVELOPMENT   OF   THE   WEST  215 

best,  but  for  the  work  accomplished  by  the  agencies  of 
transportation,  we  might  now  have  a  sparse  population 
spread  over  our  western  country,  vegetating  on  the 
soil,  consuming  its  produce  on  the  spot  in  a  state  of 
little  culture  *  The  rapid  development  of  the  re- 
sources of  our  West,  merely  because  we  had  them, 
by  a  cultivated,  ambitious,  prosperous  people,  able 
to  buy  the  manufactures  of  the  East,  is,  indeed,  not 
to  be  taken  for  granted.  This  rapid  development 
and  readjustment  of  the  lives  of  many  human  beings 
necessarily  involved  what  the  late  David  A.  Wells 
called  the  growing  pains  of  progress.  Those  who 
felt  these  pains  would  have  tried  —  in  fact,  they  did 
try  —  to  bring  about  governmental  interference  cal- 
culated to  cause  serious  impediment.  Judging  from 
European  experience,  their  efforts  might  have  been 
successful,  if  the  opportunity  had  been  at  hand  — • 
if  the  making  of  railway  rates  had  been  in  national 
politics. 

*  According  to  Professor  G.  S.  Callender,  as  early  as  1816  there  were 
about  2,cxx3,ooo  of  people  west  of  the  Alleghany  Mountains  ;  but  the 
commercial  towns  were  rarely  of  more  than  a  few  hundred  inhabitants, 
and  the  sum  total  of  the  exports  to  the  external  world  amounted  to 
probably  less  than  $^  per  capita. 


CHAPTER   II 

THE   PROTESTS    AGAINST    THE    GROWING   PAINS   OF 

PROGRESS 

The  competition  of  the  surplus  grain-producing 
States  of  the  West  has  progressively  revolutionized 
the  agricultural  practice  of  the  East.  One-crop 
farming  in  the  East  gave  way  to  farming  by  rotation 
of  crops;  and,  wherever  possible,  truck  farming, 
fruit  raising  and  dairying  were  substituted  for  the 
raising  of  grain.  Scarcely  had  the  farmers  of  the 
Eastern  States,  such  as  New  York,  made  the  transition 
to  dairy  farming  when  they  had  to  adjust  themselves 
to  a  new  and  lower  level  of  prices.  Such  Middle 
Western  States  as  Iowa,  Illinois  and  Wisconsin, 
pressed  by  the  competition  of  Kansas  and  Nebraska, 
and  aided  by  the  development  of  a  local  market, 
turned  from  wheat  farming  to  dairy  farming.  At 
the  same  time  the  railways  brought  about  a  revolu- 
tion in  transportation  by  introducing  ventilated 
refrigerator  cars,  which  enabled  them  to  carry  the 
surplus  butter  and  other  dairy  products  of  Iowa  and 
Illinois  into  the  very  market  of  the  New  York  dairy 

216 


THE   GROWING   PAINS   OF   PROGRESS  217 

farmer.  The  eastern  farmers  who  had  sought  relief 
from  the  falling  price  of  grain  in  truck  farming  and 
fruit  raising  fared  little  better  than  those  who  had 
turned  to  dairying.  The  railroads  leading  to  the 
North,  from  Georgia,  Florida  and  other  South 
Atlantic  States,  soon  brought  north  garden  truck  and 
fruits  in  such  quantity  as  to  establish  an  entirely  new 
level  of  prices  for  vegetables  and  fruits.*  It  was  this 
continued  increase  in  competition,  coming  from  the 
continued  opening  up  of  new  sources  of  supply, 
that  produced  the  remarkable  decline  in  the  value  of 
farm  lands  in  certain  sections  of  the  country  in  the 
period  from  1875  to  1900.  In  spite  of  the  doub- 
ling of  population,  farming  land  in  the  Eastern  States 
and  Middle  States,  excepting  that  in  the  vicinity  of 
cities  and  large  villages,  has  depreciated  in  many 
cases  from  25  to  50  per  cent.  Land  remote  from 
railways,  or  adapted  only  for  grazing,  or  exhausted 
by  unwise  farming,  has  become  difficult  of  sale  at  any 
price  in  the  territory  east  of  the  Mississippi  and  north 
of  the  Ohio  and  the  Potomac.  The  total  value  of 
the  farm  lands,  with  buildings  and  improvements, 
in  the  States  of  New  York,  Pennsylvania  and  Ohio, 
fell  from  $3,159,000,000  in  1880  to  $2,823,000,000 
in   1900.     West  of  the   Mississippi,   on   the  other 

*  T.  H.  Elliott :  Memorandum  ott  Agriculture  in  the  United  States ; 
in  Minutes  and  Evidence  of  The  Royal  Commission  on  Agriculture  ; 
Milton  Whitney  in  Report  of  the  Industrial  Commission  on  Agriculture 
and  Agricultural  Labor  ;  Report  of  the  Industrial  Commission  on  the  Dis- 
tribution of  Farm  Products  ;  and  Mr.  Conrow  in  Transactions  American 
Society  of  Civil  Engineers,  December,  1901. 


218  RAILWAY   RATES 

hand,  farming  land  has  had  a  remarkable  rise  in 
value* 

Of  course  these  disturbances  of  property  values, 
which  were  necessary  incidents  in  the  development 
Eastern  Farmers  of  this  country,  called  forth  storms 
demand  the  Dts-    q£  protest  f  rom  the  Dcrsons  adversely 

tance  Tariff  on 

Western  Farm  affected.  The  farmers  of  New  York, 
Produce  Pennsylvania    and  Ohio    bombarded 

Congress  with  petitions  that  the  rates  on  grain  be 
fixed  on  the  distance  basis :  the  rate  from  the  farm 
in  Kansas,  say  1200  miles  from  the  seaboard,  was 
to  be  three  times  the  rate  from  the  farm  in  Ohio, 
say  400  miles  from  the  seaboard.  Any  other  adjust- 
ment of  rates,  it  was  contended,  "annihilated  the 
advantage  of  proximity  to  market"  enjoyed  by  the 
eastern  farmers  before  the  railways  had  opened  up 
to  settlement  the  territory  west  of  the  Mississippi 
River.  The  late  Simon  Sterne  championed  this  doc- 
trine with  the  words,  "The  right  of  a  man  20  miles 
from  a  market  to  bring  his  product  to  market  over 
a  highway  {i.e.  the  railway),  over  a  public  road,  at 
a  less  rate  of  toll  than  he  who  is  30  miles  away,  is 
one  of  those  normal,  common-sense  views  which  no 
amount  of  argumentation  will  beat  out  of  the  heads 
of  our  farmers  and  of  our  plain  men  of  sense."  f 

*  Abstract  of  the  Eleventh  Census  of  the  United  States  ;  A.  H.  Peters: 
The  Depreciation  of  Farming  Land  in  Quarterly  Journal  of  Economics, 
October,  1889;  C.  F.  Emerick :  An  Analysis  of  Agricultural  Discontent 
in  the  United  States  in  Political  Science  Quarterly,  September,  1896;  and 
Report  of  the  Industrial  Commission  on  Agriculture  and  Agricultural 
Labor, 

t  The  Hepburn  Committee  Report,  p.  3928. 


THE   GROWING   PAINS    OF   PROGRESS  219 

A  similar  disturbance  of  property  values  and  estab- 
lished interests  occurred  at  the  same  time  in  conse- 
quence of  changes  in  the  trade  routes  and  distributing 
centres  of  the  United  States.  When  the  movement 
of  grain  from  west  to  east,  in  place  of  from  west  to 
south,  first  became  important,  the  Erie  Canal  domi- 
nated the  situation  and  directed  the  bulk  of  this 
traffic  to  New  York  City,  which  had  already,  at  the 
expense  of  Philadelphia  and  Baltimore,  acquired  the 
lion's  share  of  the  trade  with  the  West  in  gen- 
eral merchandise.  As  late  as  1866-68  practically 
the  whole  of  the  grain  arriving  at  New  York  came 
by  water.*  But  the  economies  on  the  canal  stood 
still  while  those  on  the  railways  forged  ahead:  by 
1872  the  amount  using  the  canal  was  only  70  per  cent, 
and  by  1876  it  had  fallen  to  57  per  cent.f  This 
transfer  from  water  to  rail  put  a  new  face  on  the  con- 
ditions of  competition  between  the  old  rivals.  Phila- 
delphia and  Baltimore,  under  the  leadership  of  the 
able  men  who  built  the  Pennsylvania  and  the  Balti- 
more and  Ohio  railroads,  now  made  heroic  efforts  to 
reach  Chicago  by  rail,  for  the  purpose  of  getting  a 
share  of  the  new  commerce.  In  1870  the  Pennsyl- 
vania Railroad  reached  Chicago,  through  the  acqui- 
sition of  the  Pittsburg,  Fort  Wayne  and  Chicago 
Railroad.     The  Baltimore  and  Ohio  for  a  few  years 

*  In  1869,  77  per  cent  of  the  Lake  grain  receipts  at  Buffalo  were  for- 
warded by  the  canal. 

t  The  New  York  Canals,  by  J.  A.  Fairlie,  Quarterly  Journal  of  Eco- 
nomics for  February,  1900. 


220  RAILWAY   RATES 

depended  on  Lake  Erie  and  Lake  Michigan  for  an 
outlet  to  Chicago ;  but  in  1874  it  completed  the  Balti- 
more, Pittsburg  and  Chicago  Railway. 

As  soon  as  the  Pennsylvania  and  the  Baltimore 
and  Ohio  could  make  rates  that  enabled  them  to  com- 
pete with  the  Erie  Canal  and  the  New  York  Central 
Railroad,  Philadelphia  and  Baltimore,  as  well  as  New 
York,  became  middle  points  of  transshipment  on  total 
transportation  routes  between  the  interior  of  the 
country  and  Europe.  By  a  series  of  rate  wars 
with  the  New  York  Central,  the  Pennsylvania  and 
the  Baltimore  and  Ohio  compelled  that  road  to  as- 
sent to  the  proposition  that  the  same  total  charge 
should  be  made  on  each  of  these  three  routes.  But 
the  ocean  freights  between  Philadelphia  and  Europe 
and  between  Baltimore  and  Europe  were  necessarily 
higher  than  the  ocean  freights  between  New  York 
and  Europe,  since  New  York  had  such  a  command- 
ing lead  as  a  place  of  import.  Therefore  the  rail- 
way charges  between  Philadelphia  and  the  interior, 
and  between  Baltimore  and  the  interior,  had  to  be 
(and  still  must  be)  lower  than  the  railway  charges 
between  New  York  and  the  interior.  In  other  words, 
the  Pennsylvania  and  the  Baltimore  and  Ohio  had  to 
be  given  a  '^ differential"  on  the  rail  portion  of  the 
total  transportation  route  to  Europe.  In  that  way 
alone  could  they  be  compensated  for  the  handicap 
of  higher  ocean  freight  charges.  So  far  as  total 
transportation  charges   were   concerned,   all   three 


THE   GROWING   PAINS   OF   PROGRESS  221 

cities  must  be  put  on  a  footing  of  equality;  and  the 
competition  of  the  merchants  of  the  respective  cities, 
and  the  competition  in  facilities  of  the  railways 
serving  them,  must  then  determine  the  distribution 
among  these  cities  of  the  trade  with  Europe  in 
dispute* 

But  this  arrangement  does  not  suit  New  York ;  and 
when  it  first  went  into  effect,  something  much  like  a 
New  York  City  panic  scized  that  city  which  must  ever 
protests  against  ^g  ^^c  metropolis.  It  was  thought 
^deipMaandBat  that,  if  the  ''foreign"^  railways  should 
timore  Continue  to  divert  grain  traffic  from  the 

old  routes,  the  commercial  supremacy  of  New  York 
would  be  seriously  threatened  by  the  expansion  of 
the  export  and  import  trade  at  Philadelphia  and 
Baltimore.  The  merchants  of  New  York,  acting 
under  the  leadership  of  the  Anti-Monopoly  League 
and  the  Chamber  of  Commerce,  joined  hands  with 
the  newspaper  press  of  the  city  in  a  fierce  and 
long-continued  onslaught  upon  the  New  York  Cen- 
tral and  Hudson  River  Railroad,  for  the  purpose  of 
forcing  that  corporation  to  make  such  rates  on 
traffic  to  and  from  the  West  as  to  neutralize  the 
efforts  of  the  Pennsylvania  and  the  Baltimore  and 
Ohio. 

In  April,  1878,  Mr.  W.  H.  Vanderbik,  President 
of  the  New  York  Central  Railroad,  wrote  to  Mr. 

*  A  Fink :  Report  upon  the  Adjustment  of  Railroad  Transportation 
Rates  to  the  Seaboard ;  Report  of  Thurman,  Washburne  and  Cooley,  Ad- 
visory Committee  on  Differential  Rates  between  the  West  and  the  Seaboard. 


222  RAILWAY   RATES 

Wilson,  Secretary  of  the  Chamber  of  Commerce  of 
New  York  City,  as  follows :  — 

"  To  require  the  New  York  railroads  to  carry  freight  to  and  from 
the  West  at  rates  which  would  disregard  the  excess  of  cost  of  trans- 
portation from  Philadelphia  and  Baltimore  to  and  from  foreign  ports 
would  give  to  New  York  merchants  such  advantages  as  would  destroy 
the  commerce  of  those  cities.  Their  roads  would  not  submit  to  this, 
nor  would  the  cities  permit  them  to,  until  they  had  been  exhausted 
in  the  struggle  to  maintain  a  fair  equilibrium.  The  New  York  roads 
have  put  this  city  on  an  equality  with  the  most  favored  rival  .  .  .  the 
rest  remains  with  its  merchants.  So  long  as  their  opportunities  are 
as  favorable  as  those  of  any  other  port,  they  can  compete  success- 
fully with  all  comers."  * 

Mr.  Simon  Sterne,  who  for  more  than  20  years  as- 
pired to  make  public  opinion  on  railway  matters, 
replied  to  Mr.  Vanderbilt :  — 

"  The  contention  that  an  arrangement  which  places  New  York  on 
an  equality  with  other  cities  is  not  discriminative  against  New  York, 
because  New  York,  as  Mr.  Vanderbilt  thinks,  has  no  right  to  superi- 
ority, must  be  conceded  to  be  pure  and  simple  nonsense.  To  level, 
by  artificial  regulations,  a  corporation,  person  or  city,  having  certain 
natural  or  acquired  advantages,  down  to  the  place  of  its  rivals,  is  to 
discriminate  most  injuriously  against  the  one  having  the  advantages."  * 

In  reply  to  another  argument  Mr.  Sterne  observed : — 

"  The  mere  reduction  of  transportation  charges  is  not  necessarily 
a  benefit  to  a  trading  community  if  its  rivals  get  the  same  or  a 
greater  reduction.  The  consumer,  of  course,  is  benefited ;  but  New 
York  thrives  upon  its  commerce,  and  not  by  what  it  consumes ;  and 
hence  we  must  look  at  its  interests  as  a  trader  and  dealer  when  we 
come  to  calculate  profits." 

*  Simon  Sterne:  The  Railway  in  its  Relation  to  Public  and  Private 
Interests,  an  address  given  in  New  York,  April  19,  1878.  Compare  also: 
The  Hepburn  Committee  Report,  p.  3932.  Mr.  Simon  Sterne :  "...  By 
what  right  do  our  railways  conspire  to  wipe  out  and  destroy  the  natural 
advantages  of  our  great  city  and  place  us  upon  a  level  with  Boston,  Balti- 
more and  Philadelphia  ?  " 


THE  GROWING  PAINS   OF  PROGRESS  223 

Shortly  before  Mr.  Sterne  made  these  observations, 
the  Committee  on  Railroad  Transportation  of  the 
Chamber  of  Commerce  of  New  York  State  reported 
that  "bad  city  government,  enormous  taxation,  mis- 
erably paved  and  dirty  streets,  insufficient  and  expen- 
sive terminal  facilities  and,  more  recently,  oppressive 
railroad  discrimination  had  made  New  York  the 
most  expensive  city  in  the  world  in  which  to  do  busi- 
ness."* In  the  following  year,  the  Chamber  of  Com- 
merce of  the  city  of  New  York,  in  a  memorial  to  the 
State  Legislature,  said :  — 

"  If  the  doctrine  enunciated  by  Mr.  Vanderbilt  ...  is  to  be  ac- 
cepted, .  .  .  and  the  natural  advantages  of  New  York  must  be  abro- 
gated at  the  dictation  of  the  Baltimore  and  Ohio  and  the  Pennsylvania 
railroads,  in  order  to  prevent  a  railroad  war,  then  our  merchants 
must  look  forward  to  establishing  branch  houses  in  other  seaboard 
cities,  our  owners  of  real  estate  to  accepting  a  further  reduction  upon 
their  already  greatly  reduced  rentals  for  property,  our  municipal 
authorities  to  a  reduction  in  taxpaying  power,  which  not  only  will 
compel  a  wholesale  reduction  in  the  expenses  of  government,  but 
also  impair  our  ability  to  pay  interest  upon  our  municipal  securities, 
in  which,  through  the  savings  banks,  the  savings  of  the  people  are 
largely  invested." 

The  Nation,  our  greatest  champion  of  laissez-faire, 
supported  Mr.  Sterne  and  the  Chamber  of  Commerce 
with  the  statement :  — 

"That  Mr.  Vanderbilt's  letter  does  not  at  once  create  a  com- 
bination of  the  larger  real  estate  owners,  the  value  of  whose  prop- 
erty is  dependent  upon  the  natural  advantages  of  New  York,  as  it 
already  has  of  the  merchants,  arises  simply  from  the  fact  that  their 

*  Report  of  the  Committee  on  Railroad  Transportation  of  the  Chamber 
of  Commerce  of  the  State  of  New  York  as  to  Freight  Discriminatiofts,  and 
the  Effect  upon  the  Commerce  of  the  City,  February  28,  1878. 


224  RAILWAY  RATES 

interests  are  not  so  directly  and  immediately  affected  as  the  mercantile 
interest.  Were,  however,  the  full  meaning  and  scope  of  this  letter 
understood  by  the  owners  of  the  soil  of  New  York,  they  would  be 
as  prompt  as  the  merchants  to  institute  an  inquiry  as  to  the  nature 
of  the  causes  which,  either  naturally  or  artificially,  will  deprive 
them  of  the  main  value  of  their  property,  by  placing  the  owners  of 
the  property  in  Baltimore  and  Philadelphia  in  competition  with 
themselves." 

The  fight  against  the  "differentials"  was  continued 
for  years,  and  in  1882  The  Commercial  and  Finan- 
cial Chronicle  *  wrote  in  the  following  threatening 
fashion :  — 

"  No  matter  what  agreement  is  reached  by  the  roads,  the  differ- 
entials must  go.  If  needs  be  a  power  higher  than  the  roads  will  force 
them  out.  Our  business  men  are  not  tainted  with  communistic  ideas, 
but  they  have  of  late  years  been  lending  their  aid  to  schemes  and 
measures  that  savour  strongly  of  communism,  being  thrown  into  that 
attitude  through  the  disregard  of  their  rights  and  interests  by 
corporations." 

Upon  the  solicitation  of  the  interior  cities,  Congress 
in  1870  passed  a  bill  authorizing  the  transportation 
New  York  City  of  imported  goods  in  bond  from  the 
protests  against     Atlantic  ports  to  Chicago,  St.  Louis, 

the  Rise  of  In-         ^.      .  •     ,,  ,  .  ,        ,  .  . 

terior  Jobbing  Cincinnati,  Memphis  and  other  cities 
Centres  in    the    interior.      These   cities   had 

begun  their  commercial  careers  as  market  places 
of  minor  importance  for  the  collection  of  agri- 
cultural produce  and  as  distributing  points  for 
the  eastern  manufactures  and  imports  used  by 
the  farming  population.  At  first  the  distributing 
merchants  had    made   their   purchases  of   the  so- 

*  January  28,  1882, 


THE  GROWING  PAINS  OF  PROGRESS  225 

called  jobbers  located  in  New  York  and  in  other 
seaboard  cities.  These  jobbers  are  a  class  of 
merchants  peculiar  to  the  United  States,  owing 
their  origin  to  the  need  of  some  agency  to  col- 
lect several  lines  of  goods  for  the  convenience  of 
those  small  wholesale  and  retail  merchants  whose 
business  does  not  warrant  them  in  buying  directly 
from  the  manufacturer  or  importer  whole  packages, 
bales  or  boxes  of  any  article ;  and  with  time  the  job- 
bing business  in  New  York  City  had  grown  to  be 
enormous.  But,  as  the  interior  cities  increased  in 
population  and  wealth,  their  merchants  began  to 
buy  in  large  lots,  and  directly  from  the  manufacturer 
and  the  importer.  At  the  same  time,  jobbers  estab- 
lished themselves  in  some  of  the  interior  cities,  and 
captured  a  large  part  of  the  trade  that  had  formerly 
gone  to  the  larger  Atlantic  coast  cities.  These  job- 
bers bought  by  the  car-load  lot  in  New  York,  and 
distributed  from  the  larger  cities  to  the  smaller  ones. 
They  were  able  to  get  lower  rates  to  the  interior  than 
were  the  New  York  jobbers,  who  shipped  to  the 
smaller  interior  cities  in  less  than  car-load  lots. 

This  shifting  of  a  part  of  the  jobbing  trade  from 
the  coast  to  the  interior  was  the  inevitable  result  of 
the  growth  of  population  and  wealth  in  the  interior. 
But  the  merchants  of  New  York  did  not  take  this 
view  of  it ;  they  fastened  their  attention  upon  a  mere 
incident  of  the  change,  and  attributed  the  decline  in 
New  York's  jobbing  trade  to  the  discrimination  in 


226  RAILWAY  RATES 

rates  in  favor  of  car-load  lots,  as  against  less  than 
car-load  lots  *  In  1879  the  Committee  on  Railroad 
Transportation  of  the  Chamber  of  Commerce,  in  a 
memorial  to  the  State  Legislature,  said :  — 

"  Your  Committee  believe  that  New  York  has  a  prior  claim  to  this 
(jobbing)  trade,  as  it  first  settled  and  naturally  belongs  here.  The 
railroads  have  no  right  to  break  up  the  jobbing  trade  of  this  city  and 
transfer  it  to  the  interior  of  our  own  or  other  states,  nor  do  we  think 
they  have  the  right  to  so  discriminate  between  large  and  small  ship- 
pers as  to  prevent  the  latter  choosing  in  what  market  they  will  make 
their  purchases."  f 

The  farmers  of  the  State  in  general,  the  millers  of 
Rochester,  the  grain,  flour  and  coal  merchants  of 

*  Report  of  the  Special  Committee  on  Railroads,  appointed  under  a 
Resolution  of  the  Assembly,  February  28,  iSjg,  to  investigate  Alleged  Abuses 
in  the  Management  of  Railroads  chartered  by  the  State  of  New  York  (com- 
monly known  as  the  Hepburn  Committee  Report)  ;  joint  letter  of  Messrs. 
Vanderbilt  and  Jewett  to  the  Hon.  A.  B.  Hepburn,  Chairman  Special 
Committee  on  Railroads.  Compare  also :  Argument  by  C.  M.  Depew  he- 
fore  the  Assembly  Railroad  Committee  against  the  Railroad  Commission 
Bills  and  the  Anti- Freight  Discrimination  Bills,  March  9,  1882. 

t  The  Hepburn  Committee  Report.  The  meaning  of  this  last  phrase 
is  that  the  discrimination  in  favor  of  the  jobbers  in  the  interior  and  against 
the  jobbers  in  New  York  would  enable  the  former  to  make  such  terms  as 
practically  to  compel  the  small  dealer  in  the  interior  to  purchase  from  them. 

Compare  also  :  Argument  by  C.  M.  Depew  before  the  Assembly  Railroad 
Committee  against  the  Railroad  Committee's  Bill  and  the  Anti-Freight  Dis- 
criminatio7t  Bills,  March  9,  1882.  "  In  1874  Mr.  Thurber  said  to  me  sub- 
stantially this  :  '  Depew,  for  years  and  years  delegations  came  here  from 
the  central  and  western  parts  of  the  State  demanding  pro  rata  (distance 
tariff)  freight  bills  and  all  sorts  of  restrictive  legislation  upon  railroads. 
You  satisfied  them  by  giving  special  rates  to  localities  and  to  manufac- 
turers in  localities,  by  which  the  wholesale  business  of  the  city  of  New 
York  has  been  transferred  to  Albany,  to  Troy,  to  Buffalo,  to  Syracuse,  to 
Rochester,  to  Utica,  etc. ;  and  we  give  you  fair  notice,  here  and  now, 
that  having  done  that  to  satisfy  the  State  of  New  York  outside  the  city  of 
New  York  and  succeeded,  and  having  thus  driven  us  out  of  that  business 
and  transferred  it  to  the  interior,  that  we  will  prove  ourselves  so  much 
more  dangerous  to  you  than  they  ever  dared  to  be,  that  you  will  be  glad 
to  give  us  back  that  trade,  and  make  your  alliance  with  us.' "  Mr. 
Thurber  and  Mr.  Sterne  organized  the  Anti-Afonopoly  League,  the  object 
of  which  was  to  give  New  York  City  the  monopoly  of  the  export,  import 
and  jobbing  business  of  the  United  States. 


THE   GROWING   PAINS   OF   PROGRESS  227 

Buffalo,  the  lumber  dealers  of  Albany,  the  commis- 
sion merchants  as  well  as  jobbers  of  New  York  City 
New  York  State  ^^^  ^  Other  classes  of  pcrsons  whose 
demands  the  pecuniary  interests  suffered  in  conse- 
Distance  Tariff     quencc  of  the  great   changes  which 

against  the  West  .      .  ^      ,      ^  .  i        i        i 

were  a  necessary  mcident  or  the  devel- 
opment of  our  country  from  an  aggregation  of  States 
largely  separate  in  economic  activity  and  interest  into 
a  national  industrial  community,  were  finally  organ- 
ized by  the  New  York  Chamber  of  Commerce 
and  the  Anti-Monopoly  League.  Thus  organized, 
they  secured  the  appointment,  by  the  Legislative 
Assembly  of  New  York,  of  the  "Special  Committee 
on  Railroads  to  investigate  Alleged  Abuses  in  the 
Management  of  Railroads  chartered  by  the  State 
of  New  York,"  commonly  known  as  the  "Hepburn 
Committee."  Before  this  committee  the  spokesmen 
of  the  farmers  appeared  to  demand  that  western 
wheat  and  western  cattle  should  no  longer  be  hauled 
to  the  Atlantic  seaboard  so  cheaply  as  to  injure  the 
vested  rights  of  the  New  York  farmers,  by  depriving 
them  of  the  natural  advantage  which  they  had  enjoyed 
in  the  past  by  virtue  of  proximity  to  the  market. 
The  lumber  dealers  of  Albany  stated  that  they 
brought  their  lumber  from  the  West  by  way  of  the 
Great  Lakes  and  the  Erie  Canal,  and  distributed  it 
from  Albany  by  rail.  Before  the  advent  of  the  rail- 
ways, Albany  had  supplied  New  England  and  the 
whole   Atlantic   coast   with   western   lumber.     But 


228  RAILWAY   RATES 

this  trade  had  been  transferred  to  western  points, 
because  the  railways  carried  lumber  from  the  West 
to  New  England  and  the  Atlantic  seaboard  at  rates 
little  in  excess  of  the  rates  from  Albany  to  New  Eng- 
land. The  people  of  Albany  demanded  that  the 
rates  on  lumber  from  the  West  to  New  England  and 
from  Albany  to  New  England  should  be  based  on  the 
respective  lengths  of  haul  by  rail.  In  other  words, 
they  insisted  that  Albany  must  not  be  deprived  of  a 
trade  that  had  depended  on  waterways.  The  Board 
of  Trade  of  Buffalo  asked  that  the  rates  on  lumber, 
pork,  grain  and  flour  from  western  points  to  points 
in  New  England  and  on  the  seaboard  should  be  no 
lower  than  the  sum  of  the  rates  from  western  points 
to  Buffalo,  and  thence  to  points  in  New  England 
and  on  the  coast.  They  joined  the  millers  of  Roches- 
ter in  protesting  that  the  movement  of  the  pork-pack- 
ing and  flour-milling  industries  to  Indianapolis, 
Chicago,  Milwaukee  and  Minneapolis  was  not  en- 
tirely due  to  the  movement  westward  of  the  corn  belt 
and  the  wheat  belt.  They  insisted  that  under  a 
proper  adjustment  of  rates,  on  the  basis  of  relative 
lengths  of  haul,  —  that  is,  a  distance  tariff, —  Buffalo 
and  Rochester  would  hold  their  own  as  pork-packing 
and  flour-milling  centres.  The  Buffalo  Board  of 
Trade  also  objected  to  the  railways  carrying  grain 
and  flour  from  western  points  to  points  in  New  York 
State,  such  as  Binghamton  and  Medina,  at  the  same 
rate  at  which  they  carried  grain  and  flour  to  Buffalo, 


THE  GROWING  PAINS  OF  PROGRESS  229 

on  the  ground  that  the  practice  eliminated  the  middle- 
man at  Buffalo,  who  had  been  needed  when  the  grain 
and  flour  coming  from  the  West  by  rail  had  stopped 
at  Buffalo  to  be  transshipped  from  one  railway  to 
the  other.  Similarly,  the  Buffalo  coal  dealers  felt 
aggrieved  because  the  railways  had  made  the  rate  on 
coal  from  Syracuse  to  Chicago  as  low  as  the  rate  from 
Buffalo  to  Chicago,  and  had  put  an  end  to  the  old 
established  course  of  trade,  under  which  coal  on  its 
way  to  Chicago  was  made  to  pay  storage  charges 
and  commissions  at  Buffalo.  All  of  these  different 
interests  insisted  that  it  was  the  duty  of  the  railways 
as  common  carriers  so  to  adjust  their  rates  as  to  keep 
alive  an  established  trade  or  industry  at  a  particular 
place  under  all  circumstances  and  for  all  time.  Like 
the  Chambers  of  Commerce  of  New  York  State  and 
New  York  City  and  the  Anti-Monopoly  League, 
with  their  spokesmen,  Mr.  F.  B.  Thurber  and  Mr. 
Simon  Sterne,  ''they  persistently  refused  to  face  the 
fact  that  the  business  of  the  people  of  the  United 
States  had  outgrown  the  boundaries  of  the  separate 
states;  that  the  people  of  the  United  States  had  be- 
come one  in  their  business  enterprises,  and  a  unit  in 
their  business  activities."  *  On  the  contrary,  they 
strove  to  return  to  the  days  before  the  Civil  War, 
when  the  legislature  of  New  York  ordered  that  the 
Erie  Railroad  begin  at  a  point  25  miles  from  New 
York  City,  in  order  that  New  Jersey  might  derive 

*  Hepburn  Committee  Report :  argument  of  Mr.  C.  M.  Depew. 


230  RAILWAY  RATES 

no  benefit  from  the  road,  and  when  the  State  of 
Pennsylvania  refused  to  allow  the  Baltimore  and 
Ohio  to  build  to  Pittsburg,  holding  that  the  trade  of 
Pittsburg  should  go  to  Philadelphia  and  not  to  Balti- 
more. 

The  Hepburn  Committee,  on  the  whole,  indorsed 
the  jealous  and  narrow  spirit  of  local  interest  mani- 
fested by  the  complainants  who  appeared  before  it, 
but  its  common  sense  saved  it  from  taking  the  ex- 
treme attitude  of  the  people  of  New  York  City.  It 
realized  that  nothing  of  advantage  could  be  done,  for 
the  simple  reason  that  the  Pennsylvania  Railroad 
and  the  Baltimore  and  Ohio  were  not  subject  to  the 
jurisdiction  of  the  State  of  New  York.  It  saw  that, 
if  the  State  should  hamper  the  New  York  Central 
Railroad,  over  which  it  did  have  control,  for  the 
purpose  of  preserving  the  vested  interests  of  its  citi- 
zens, the  Pennsylvania  and  the  Baltimore  and  Ohio 
would  transfer  to  Philadelphia  and  to  Baltimore  the 
trade  with  the  interior  of  the  country. 

In  the  decade  from  1850  to  i860,  when  the  strug- 
gling people  of  the  West  were  beginning  to  reap  the 
benefit  of  the  competition  between  the  railways  and 
the  Erie  Canal,  two  governors  of  New  York  and  a 
number  of  committees  of  ways  and  means  of  the  Leg- 
islature proposed  to  protect  the  canal,  by  imposing 
upon  all  freight  carried  by  rail  a  toll  equivalent  to 
that  collected  from  the  traflSc  on  the  canal.    They 


THE   GROWING   PAINS   OF  PROGRESS  231 

argued  that,  if  the  railways  were  allowed  to  destroy 
the  earning  power  of  the  canal,  it  would  be  necessary 
to  impose  additional  taxes.  They  described  as  "a 
system  of  disparity  and  injustice  unparalleled  in  the 
annals  of  trade  and  commerce,  such  as  none  of  the 
most  despotic  monarchs  of  the  world  have  ever  dared 
to  inflict  on  their  own  people,"  the  practice  under 
which  the  railways  charged  less  per  ton  per  mile  on 
freight  carried  from  the  West  to  the  seaboard  than 
on  freight  carried  from  points  in  New  York  State  to 
the  seaboard  —  that  is,  the  departure  from  the  dis- 
tance tariff.  This  onslaught  upon  the  New  York 
Central  and  Erie  railroads  constituted  one  of  the 
most  embittered  political  fights  ever  waged  in  the 
State.  It  lasted  for  years,  and  was  maintained  chiefly 
by  the  owners  of  canal  boats,  by  millers,  by  traders 
and  by  middlemen  of  all  kinds,  who  foresaw  that 
they  would  be  displaced  unless  the  railways  should 
be  forced  to  make  the  same  rates  per  ton-mile  on 
through  freight  as  on  local  freight — that  is,  should 
be  forced  to  adopt  the  distance  tariff.* 

Since  1870  the  competition  between  the  rival  rail- 
ways leading  from  the  rival  primary  grain  markets  in 
Competition  of  ^^^  ^cst  to  the  rival  export  cities  has 
Atlantic  Ports  been  beyond  all  comparison  the  most 
redtices  Railway  powerful  f actor  in  reducing  the  railway 
charges  on  the  haulage  of  grain,  as 
well  as  the  commission  and  storage  charges  to  which 

*  H.  v.  Poor:  Manual  of  the  Railroads  of  the  United  States,  1881. 


232  RAILWAY  RATES 

grain  is  subjected  in  passing  from  the  farmer  in  the 
West  to  the  consumer  in  the  South,  on  the  Atlantic 
coast  and  in  Europe.  Had  the  claims  of  New  York 
City  respecting  an  indefeasible  monopoly  of  the  ex- 
port and  import  trade  been  capable  of  enforcement 
in  any  degree,  by  so  much  would  the  millions  of  peo- 
ple who  opened  up  the  interior  of  the  United  States 
by  tilling  the  soil  have  been  deprived  of  the  inestima- 
ble boon  of  a  constant  reduction  in  the  cost  of  getting 
their  produce  to  the  consumer  hundreds  and  thou- 
sands of  miles  away.  What  it  would  have  meant,  if 
the  city  of  New  York  could  have  had  its  way  through 
the  State  Legislature,  one  can  picture  by  recalling 
the  statement  of  the  late  Mr.  Sterne,  "The  mere 
reduction  of  transportation  charges  is  not  necessarily 
a  benefit  to  a  trading  community.  ..."  New  York 
City  regarded  as  a  part  of  the  natural  order  of  things 
that  the  western  trade  should  come  to  its  doors,  and 
proposed  simply  to  collect  toll  on  it.  It  was  Balti- 
more, the  interloper,  that  established  in  1874  the 
first  stationary  grain  elevator  on  the  Atlantic  coast 
and  thereby  reduced  the  charge  per  bushel  for  the 
receiving,  weighing,  wharfage,  storage  and  delivery 
of  grain  from  4  and  5  cents  to  ij  cents,  and  in  addi- 
tion reduced  the  time  of  loading  vessels  from  5  or  10 
days  to  as  many  hours.*  It  was  Maryland  that 
exempted  from  taxation  for  all  time  the  Baltimore 

*  Compare  the  leading  article  in  Journal  of  Political  Economy,  Sep- 
tember, 1897. 


THE   GROWING   PAINS   OF   PROGRESS  233 

and  Ohio  Railroad.  It  was  New  York  City,  on  the 
contrary,  in  its  corporate  capacity,  that  turned  to 
money-making  uses  the  gift  from  the  State  of  the 
land  under  water  bordering  the  water  front,  and 
took  no  heed  of  the  effect  of  that  policy  on  the  trade 
of  the  city ;  *  and  that,  moreover,  allowed  the  city 
docks  and  wharves  erected  on  this  land  to  become 
the  prey  of  politicians.  Among  other  things,  ''bad 
city  government"  and  "insufficient  and  expensive 
terminal  facilities,"  it  was  maintained  by  those  who 
inquired  into  the  matter,  "made  New  York  the  most 
expensive  city  in  the  world  in  which  to  do  business."  f 
And  again,  competent  authority  asserted,  "the  long 
monopoly  of  export  which  New  York  has  enjoyed 
has  made  it  possible  to  introduce  and  maintain  a 
rate  of  taxes  for  handling  and  merchants'  dues  at  the 
terminus  such  as  would  have  been  impossible,  had 
the  competition  of  the  other  ports  been  sharper.  It 
is  conceded,  we  believe,  that  New  York  takes  larger 
tolls  than  any  other  port  out  of  the  grain  exported; 
and  the  grain  merchants  find  it  very  difficult  to  re- 
form this.  The  business  is  old ;  the  methods  of  do- 
ing it  long  established ;  a  large  number  of  influential 
people  are  interested  in  preserving  every  tax  on  the 
grain,  and  there  is  much  greater  difficulty  in  combin- 

*  Letter  of  W.  H.  Vanderbilt  to  Charles  S.  Smith,  Chairman  of  the 
Chamber  of  Commerce  of  New  York,  in  Report  of  the  Committee  on  Rail- 
road Transportation,  etc. 

t  Report  of  the  Committee  on  Railroad  Transportation  of  the  Chamber 
of  Commerce  of  the  State  of  New  York  for  February  28,  1878. 


234  RAILWAY   RATES 

ing  to  introduce  a  reform  than  when  the  business 
is  comparatively  new  and  abuses  are  less  firmly 
rooted."  * 

During  the  period  from  1850  to  i860  the  manage- 
ment by  the  State  of  the  Erie  Canal  was  corrupt  and 
inefficient,  and  in  the  following  ten  years  it  became 
worse.  One  of  the  main  reasons,  indeed,  why  the 
railways  gained  so  rapidly  on  the  canal  from  the  mid- 
dle of  the  sLxties  onward,  was  the  frequent  breaks  in 
the  canal,  and  the  consequent  blocks  to  traffic:  "one 
never  could  tell  when  freight  would  arrive."  f  Even 
from  1870  to  1880  the  canal  continued  to  be  operated 
primarily  as  a  part  of  a  political  machine.  Little 
was  done  toward  remedying  this  abuse  and  others; 
but  the  Chamber  of  Commerce  of  New  York  City 
organized  a  kind  of  drag-net  campaign,  gathering  up 
all  persons  with  a  real  or  fancied  grievance,  and 
through  the  political  power  thus  made  up  of  hetero- 
geneous elements  sought  to  force  the  New  York 
Central  into  an  attempt  to  impede  the  growth  of 
trade  at  Baltimore  and  Philadelphia. 

New  York  has  not  been  the  only  State  which  has 
sought  to  regulate  railway  rates  in  a  protectionist 
direction.     To  mention  only  a  few  examples  from 

*  See  the  article  entitled  Grain  Transportation  and  Exports  in  The 
Railroad  Gazette  of  February  23,  1877. 

t  Mr.  Conrow  and  Mr.  W.  G.  Raymond  in  Transactions  of  the  Ameri- 
can Society  of  Civil  Engineers,  December,  1901.  Compare  also  :  Mr.  W.  J. 
McAlpine's  testimony  before  the  New  York  Chamber  of  Commerce,  reported 
in  The  Railroad  Gazette,  June  14,  1873. 


THE   GROWING  PAINS    OF   PROGRESS  235 

other  parts  of  the  country  may  be  worth  the  while. 
state  Commissions  ^hus,  as  early  as  1874  the  Iowa 
regulate  Railways  Legislature  fixed  the  rates  on  lumber 
to  protect  state  ^^{l\^  ^n  eye  to  favoring  the  lumber 
dealers  of  Davenport,  Dubuque  and 
Clinton,  at  the  expense  of  the  Chicago  dealers.*  Of 
late  years  the  Iowa  State  Railroad  Commission  has  re- 
peatedly fixed  railway  rates  with  a  view  to  affording 
protection  against  neighboring  States.  In  its  report 
for  1891,  for  example,  it  announced  with  pride  that,  in 
consequence  of  the  rates  it  had  made,  hay  and  corn 
raised  in  northern  Iowa  were  being  sold  into  the 
dairy  counties  of  southern  and  eastern  Iowa  at  bet- 
ter prices  than  formerly.  These  latter  counties  had 
previously  bought  much  of  their  hay  and  corn  in 
Chicago :  in  the  words  of  the  Commission,  they  had 
"paid  tribute  to  Chicago."  f  The  State  Railroad 
Commission  of  Illinois,  in  turn,  has  fixed  rates  on 
canned  goods,  sugar,  coffee  and  similar  articles  with 
an  eye  to  protecting  the  Illinois  jobber.  J 

South  of  the  Ohio  and  the  Potomac,  State  Railroad 
Commissions  have  engaged  rather  extensively  in  the 
practice  of  establishing  a  disguised  system  of  pro- 
tection  through  the  regulation  of    intra-State  rail- 


*  The  Railroad  Gazette,  March  24,  1876. 

t  For  many  other  instances  of  this  same  spirit,  see  F.  H.  Dixon :  State 
Railroad  Control. 

X  Report  of  the  Industrial  Commission  on  Transportation  :  testimony 
of  Mr.  A.  J.  Vanlandingham,  Commissioner  of  the  St.  Louis  Freight 
Bureau. 


236  RAILWAY   RATES 

way  rates.*  The  State  Railroad  Commission  of 
Texas,  to  speak  of  one  case  only,  has  repeatedly 
warned  the  railways  leading  into  Texas  that  it  would 
meet  any  undue  reductions  of  rates  into  Texas  on 
articles  manufactured  in  Texas,  or  sold  by  Texas 
jobbers,  with  reductions  in  the  intra-State  rates ;  and 
it  has  actually  made  many  reductions  in  rates  with 
the  avowed  object  of  assisting  the  State  manufac- 
turers and  jobbers.  Again,  even  within  the  State, 
the  doctrine  that  each  locality  has  a  prior  claim  to 
the  trade  of  its  neighborhood  has  received  substan- 
tial support.  Upon  its  establishment  the  Texas 
Commission  found  in  force  over  that  part  of  Texas 
lying  to  the  east  of  a  line  drawn  from  Corpus  Christi 
to  the  northwest  corner  of  the  State  a  modified 
scheme  of  "postage  stamp"  rates,  under  which  there 
was  but  one  rate  on  shipments  over  distances  upward 
of  187  miles.  This  system  the  Commission  sought 
to  replace,  so  far  as  it  could  do  so  without  disturbing 
the  established  course  of  trade  to  such  an  extent  as  to 
endanger  its  own  existence  by  arousing  local  jeal- 
ousies, with  a  system  of  mileage  rates.  The  Com- 
mission disapproved  postage  stamp  rates,  on  the 
ground  that  in  the  competition  for  any  market  these 
rates  placed  manufacturers  and  producers  on  the 
same  footing  without  reference  to  the  distance  from 
the  market.     Mileage  rates,  on  the  other  hand,  con- 

*  Loco  citato :  testimony  of  Mr.  J.  M.  Langley,  representative  of  the 
Merchants'  Association  of  New  York. 


THE  GROWING  PAINS   OF   PROGRESS  237 

served  to  each  manufacturer  and  producer  the  ad- 
vantage to  which  his  proximity  to  the  market  entitled 
him* 

But  just  here  the  Texas  Commission  met  with  a 
stumbHng-block.  So  long  as  the  question  was  one 
between  the  rival  claims  of  a  Texas  town  and  some 
"foreign"  town,  such  as  St.  Louis,  whose  inhabit- 
ants have  no  votes  in  Texas,  the  task  was  an  easy  one. 
An  axiom  was  always  at  hand  to  support  the  decision 
in  favor  of  the  Texas  town:  to  wit,  that  a  country 
merchant  can  get  better  credit  at  home  than  abroad, 
and  therefore  it  is  for  his  interest,  and  the  public 
interest,  for  him  to  buy  of  a  Texas  jobber  rather  than 
of  a  St.  Louis  jobber.  But  when  the  dispute  was 
between  two  Texas  towns,  local  jealousies  occasioned 
the  Commission  ''much  labor  and  anxiety."  That 
body  was  obliged  in  the  end  to  announce  that,  "rate- 
making  not  being  among  the  exact  sciences,  no  uni- 
form rules  can  be  laid  down  for  the  government  of 
rate-making  authorities  ...  ;"  that  "it  is,  there- 
fore, a  delicate  task  to  undertake  the  determination 
of  issues  with  no  sign-board  to  mark  the  way  of  the 
investigator,  and  no  guide  to  the  right  except  con- 
science and  a  determination  to  mete  out  justice  as 
one  may  be  able  to  see  what  is  just  and  right."  It  even 
admitted  that  the  competitive  conditions  were  among 
the  controlling  factors  in  the  making  of  rates.  It 
said  that  the  interests  of  the  producer  were  best  pre- 

*  Annual  Reports  of  the  Railroad  Commission  of  the  State  of  Texas. 


238  RAILWAY   RATES 

served  under  the  maintenance  of  competition  be- 
tween towns  and  between  railroads;  and  that  the 
interests  of  the  pubHc  demanded  that  rates  be  made 
in  all  cases  so  as  to  permit  carriers  "to  participate  in 
the  traffic  of  any  locality  reached  by  them."  ''Rates, 
to  be  of  advantage  to  the  public,  must  in  all  cases  be 
made  so  as  to  permit  carriers  desiring  to  do  so  to  par- 
ticipate in  the  traffic  of  any  locality  reached  by  them. 
In  pursuance  of  this  policy,  rates  (fixed  by  the  Com- 
mission) are  sometimes  made  lower  at  given  points 
on  the  same  line  than  they  are  at  intermediate  points." 
In  this  matter  of  the  relation  of  rate-making  to 
local  interests  there  is  protection  and  protection. 
Railwavs  re  u-  Each  railway,  it  is  true,  seeks  to  build 
late  Rates  to  up  the  industries  and  the  trade  of  its 

promote  Freedom  own  territory,  just  as  State  commis- 
sions seek  to  build  up  the  industries 
and  the  trade  of  their  respective  States.  But  the 
spirit  and  the  basis  of  operation  are  different.  Rail- 
way systems  are  laid  out  in  accordance  with  the  nat- 
ural resources  and  channels  of  trade  over  large  areas ; 
they  include  or  traverse  numerous  States,  whose  boun- 
daries were  drawn  with  no  reference  to  natural  divi- 
sions produced  by  trade  routes  or  by  differences  in 
the  character  of  soil  or  climate.  State  commissions, 
under  the  exigencies  of  politics,  apply  the  principles 
of  protection  in  a  narrow  and  uncompromising  spirit. 
With  them  assistance  to  home  industry  or  home  trade 
is  practically  the  only  consideration;   with  the  rail- 


THE  GROWING  PAINS  OF   PROGRESS  239 

ways  it  is  but  one  of  many  conflicting  considerations 
between  which  a  compromise  has  to  be  effected. 
State  commissions  are  characterized  by  a  lack  of 
regard  for  the  interests  and  claims  of  neighboring 
States;  but  railway  systems  are  obliged  to  consider 
the  claims  of  the  rival  systems  in  other  territories. 
In  short,  State  commissions  foster  trade  and  industry 
in  a  narrow  spirit,  and  according  to  the  accidental 
limitations  of  State  lines  and  State  interests;  the 
railways  foster  them  in  a  more  liberal  spirit  and  ac- 
cording to  comprehensive  lines  laid  down  by  the  prime 
forces  of  commerce.  In  many  cases  (examples  of 
which  might  be  given)  the  difference  lies  between 
negative  acts  which  hinder  some  one  from  doing 
something  and  positive  acts  which  assist  some  one 
to  do  something. 

''Live  and  let  live"  is  the  rule  and  practice  of 
private  business  and  the  common  law.  That  prin- 
ciple was  enforced  upon  the  States  of  our  Union,  so 
far  as  interstate  commerce  is  concerned,  when  the 
national  Constitution  was  adopted.  Had  it  been 
otherwise,  the  burdens  of  the  great  revolutionary 
changes  in  our  industrial  development  would  not 
have  been  borne,  as  they  have  been  for  the  most  part, 
in  silence.  Had  it  been  otherwise,  the  growth  of 
population  of  the  country  as  a  whole  (especially 
through  the  expansion  of  the  West)  would  have  been 
less  than  it  has  been,  and  the  free-trade  market 
afforded  our  manufacturing  industries  would  have 


240  RAILWAY   RATES 

been  correspondingly  decreased.  To  appreciate  the 
force  of  this  last  contention,  pne  must  remember  that 
the  leading  advantage  which  the  American  manu- 
facturer has  over  the  British  and  German  manufac- 
turer is  the  size  of  his  unimpeded  home  market.  It 
is  because  the  American  manufacturer  can  manu- 
facture without  let  or  hindrance  for  more  than 
75,000,000  people,  using  the  same  sorts  of  commodi- 
ties, that  he  can  conduct  his  operations  on  a  scale 
which  appears  stupendous  to  his  European  rival 
and  can  thereby  secure  economies  which  the  latter 
cannot  hope  to  attain. 

Indeed,  the  great  and  peculiar  advantage  which  all 
industrial  classes  in  this  country  enjoy  in  contrast  to 
the  people  of  Europe  —  by  force  of  long  usage,  a  sort 
of  "natural"  advantage  —  is  our  absolute  free  trade 
from  ocean  to  ocean.  In  Europe,  the  "West"  is 
eastern  Prussia,  Hungary,  Roumania,  Russia  and 
Siberia ;  while  South  Germany,  the  Rhine  Provinces, 
France,  Belgium  and  England  form  the  "  East."  But 
East  and  West  are  divided  by  customs  barriers. 
Under  the  growing  fervor  of  latter  day  patriotism,  the 
different  nationalities  of  Europe  are  engaged  every 
now  and  then  in  tariff  "wars"  —  in  "mutually  op- 
pressing each  other's  industry."  And  this  is  not  all. 
Although  within  Russia  and  the  German  Empire 
there  are  no  barriers  erected  by  means  of  customs 
duties,  there  are  other  barriers  —  and  sometimes 
absolutely  exclusive  ones,  as  we  have  seen  —  erected 


THE  GROWING  PAINS  OF  PROGRESS  241 

by  means  of  manipulation  of  railway  rates.  Our 
railway  rates  under  private  control  are  also  manipu- 
lated, but  from  different  motives  and  with  different 
results.  In  Europe  those  who  are  hurt  by  progress 
get  the  rates  under  government  control  adjusted  in 
the  direction  of  impeding  the  general  development 
of  the  community.  Here  there  is  eternal  vigilance, 
ceaseless  effort,  on  the  part  of  hundreds  of  traffic 
managers  with  a  free  hand,  directed  to  making  things 
move  on  —  to  developing  the  traffic,  to  causing  two 
blades  of  grass  to  grow  where  one  grew  before. 
There  the  effort  is  just  as  constantly  made  by  cen- 
tralized rate-making  authority  to  meet  the  predomi- 
nant political  ''pull,"  to  protect  vested  interests,  to 
keep  things  in  the  status  quo.  Europe  marvels  at 
the  stupendous  growth  of  the  United  States.  We 
take  it  for  granted;  and,  being  badly  advised, 
blindly  propose  national  legislation  on  the  European 
model. 


CHAPTER  III 

THE  WORKINGS   OF  COMPETITION 

In  1872  the  Lake  Superior  and  Mississippi  Rail- 
way was  opened  from  St.  Paul  and  Minneapolis  to 
Duluth,  thus  giving  to  the  region  embracing  the 
northern  part  of  Wisconsin,  all  of  Minnesota,  a  part 
of  Iowa  and  the  territory  to  the  westward  an  addi- 
tional outlet  to  the  Atlantic  by  way  of  the  Great 
Lakes.  President  Mitchell,  of  the  Chicago,  Mil- 
waukee and  St.  Paul,  waged  for  two  years  a  fierce 
war  on  the  Lake  Superior  and  Mississippi  Railway, 
for  the  purpose  of  preventing  it  from  developing  a 
traffic  in  grain  from  Minnesota  and  points  farther 
west.  Rates  on  grain  from  the  contested  territory 
fell  so  low  that  farming  land  400  miles  west  of 
Chicago  became  more  valuable  than  land  in  Wis- 
consin only  100  miles  west  of  Chicago;  and  there 
was  a  movement  of  population  from  Wisconsin  to 
Minnesota.  The  feeling  aroused  by  this  disturb- 
ance of  values,  together  with  the  belief  that  the 
Chicago,  Milwaukee  and  St.  Paul  was  keeping  local 
rates  high  in  order  to  recoup  the  losses  sustained 
in  this  rate  war,  was  one  of  the  reasons  why  the 

242 


THE  WORKINGS   OF  COMPETITION  243 

Granger  legislation  of  Wisconsin,  in  1874,  was  so 
much  more  drastic  than  the  similar  legislation  of  the 
neighboring  states  * 

About  ten  years  after  this  the  trans-Mississippi 
Northwest  was  provided  with  a  second  road  run- 
Protests  against  ning  to  Duluth,  built  Under  rather 
the  deveiopme7it  remarkable  circumstances.  The  St. 
of  Duluth  p^^j^    Minneapolis    and    Manitoba, 

which  later  became  a  part  of  the  Great  Northern, 
was  begun  as  a  St.  Paul  road.  As  such  it  was  handi- 
capped by  the  fact  that  it  depended  for  an  outlet  to  the 
East  upon  the  roads  leading  from  St.  Paul  to  Chicago. 
In  1880  it  tried  to  emancipate  itself  by  shipping  grain 
to  New  Orleans  by  the  Mississippi  River,  but  the 
effort  proved  unsuccessful.  A  few  years  later,  in 
1883,  Mr.  James  J.  Hill  decided  to  move  the  starting- 
point  of  his  railway  from  St.  Paul  to  Duluth,  with  a 
view  to  getting  an  outlet  to  the  East  by  way  of  the 
Great  Lakes.f  The  scheme  hardly  promised  well; 
for  Duluth  had  never  recovered  from  a  reverse  which 
it  had  suffered  in  1873,  and  in  the  census  of  1880  it 
had  possessed  only  3500  inhabitants.  Moreover,  at 
this  time,  1883,  the  owners  of  vessels  upon  the  Great 
Lakes  had  become  discouraged,  the  railways  having 

*  A.  B.  Stickney :    The  Railway  Problem. 

t  Annual  Reports  of  the  Trade  and  Commerce  of  Duluth,  Minnesota, 
for  the  Years  ending  December  31,  1887-gy ;  The  Railroad  Gazette, 
September  28  and  October  5,  1888;  February  8,  June  7  and  21,  and 
December  27, 1889;  and  Decisions  of  the  Interstate  Commerce  Commission, 
Vol.  II,  In  the  Matter  of  the  Chicago,  St.  Paul  and  Kansas  City  Railway 
Company. 


244  RAILWAY   RATES 

gained  constantly  upon  the  lake  vessels  since  1875  * 
Nevertheless,  the  President  of  the  present  Great 
Northern  system  went  ahead  with  his  plans  and  by 
1888  had  transferred  the  point  of  origin  of  his  rail- 
way system  from  St.  Paul  to  Duluth.  In  1887  he 
established  the  Northern  Steamship  Line,  with  six 
vessels  of  2700  tons'  capacity,  and  thus  secured  an 
outlet  to  Buffalo  during  the  months  in  which  the 
Lakes  are  open  for  navigation. f  In  the  following 
year,  1888,  the  Duluth,  South  Shore  and  Atlantic  — 
''Duluth's  Declaration  of  Independence"  of  Chicago 
—  gave  the  Great  Northern  a  direct  all-rail  outlet  to 
the  East  by  way  of  the  Canadian  Pacific,  the  Michi- 
gan Central  and  the  Grand  Rapids  and  Indiana 
Railroad.  For  the  purpose  of  making  this  latter  con- 
nection, the  Duluth,  South  Shore  and  Atlantic  built 
the  most  powerful  ferry-boat  in  the  world  —  a  boat 
capable  of  piercing  ice  three  feet  thick. 

As  soon  as  the  Great  Northern  had  thus  secured 
an  outlet  to  the  seaboard  by  way  of  the  Great  Lakes 

*  Monthly  Summary  of  Commerce  and  Finance,  June,  1902. 

Tonnage  of  American  Vessels  engaged  in  the  Commerce  of 
THE  Great  Lakes 

Tons 

1870 685,000 

1875 838,000 

1880 605,000 

1883 724,000 

1887 784,000 

1890 1,063,000 

1900 1,566,000 

t  The  steamers  in  question  carried  90,000  bushels  of  grain,  and  were 
called  "mammoth"  steamers.  Ten  years  later,  in  1897,  The  Empire  City 
carried  a  cargo  of  205,000  bushels  from  Duluth  to  Buffalo. 


THE  WORKINGS   OF  COMPETITION  245 

and  by  way  of  the  Duluth,  South  Shore  and  Atlantic, 
it  demanded  that  the  rates  on  merchandise  and  manu- 
factures from  the  East  to  Duluth  be  the  same  as  the 
rates  from  the  East  to  Chicago,  and  lower  than  the 
rates  from  the  East  to  St.  Paul.  These  demands  it 
based  on  the  fact  that  the  distance  by  lake  and  rail 
was  the  same  from  the  East  to  Duluth  as  to  Chicago, 
and  that  the  distance  by  rail  from  Duluth  to  the 
Northwest  was  less  than  the  distance  from  St.  Paul 
to  the  Northwest.  These  demands  met  with  storms 
of  protest  from  the  newspaper  press  and  the  mer- 
chants of  Chicago  and  St.  Paul,  as  well  as  from  the 
railways  leading  from  Chicago  to  St.  Paul  and  Minne- 
apolis. But  the  demands  were  ultimately  granted; 
and  they  brought  about  most  far-reaching  readjust- 
ments in  the  trade  relations  of  Chicago,  St.  Paul  and 
Duluth  to  the  Northwest  and  the  Southwest.  The 
merchants  of  St.  Paul  were  obliged  to  establish 
branch  houses  in  Duluth,  and  to-day  a  large  propor- 
tion of  the  coal,  salt,  lime,  cement,  heavy  iron  and 
hardware,  sugar  and  staple  groceries  distributed 
from  Duluth  is  handled  on  account  of  St.  Paul 
merchants. 

At  the  same  time  that  the  Great  Northern  made 
itself  independent  of  the  railroads  leading  from  the 
Twin  Cities  to  Chicago,  the  Minneapolis  millers  did 
the  same  by  building  the  Minneapolis,  St.  Paul  and 
Sault  Sainte  Marie.  The  building  of  this  line  to  the 
Lakes,  together  with  the  movement  northwestward 


246 


RAILWAY   RATES 


of  the  spring  wheat  belt,  developed  an  enormous  trade 
in  flour  and  wheat  from  Duluth-Superior  and  St. 
Mary's  Falls,  at  the  expense  of  the  growth  of  Chi- 
cago's trade  in  flour  and  wheat*  Chicago  and  its 
railways  fought  hard  to  hold  their  ground  in  the  flour 
and  wheat  trade,  and  they  were  able  to  cheapen  the 
rates  on  outgoing  grain  and  flour  because  of  the  re- 
munerative return  freight  of  eastern  merchandise 
into  Chicago.  But  Duluth  and  its  railways  in  large 
measure  obtained  the  same  advantage  by  developing 
with  extraordinary  rapidity  the  trade  in  merchandise 
from  Duluth  to  St.  Paul,  MinneapoHs  and  the 
American  and  Canadian  Northwest. 

Meanwhile  other  changes  were  going  on.     The 
centre  of  the  winter  wheat  area  and  the  centre  of  the 


*  The  Grain  Trade  of  the  United  States  and  the  World's  Wheat  Supply 
and  Trade. 


Shipped  from  Chicago 

Shipped  through  the  St. 

Mary's  Falls  Canal 
(/.<;.  from  Duluth  and  Superior) 

Flour 
Barrels 

Wheat 
Bushels 

Flour 
Barrels 

Wheat 
BusheU 

1881-85  .  . 
1886-90  .  . 
1891-95  .  . 
1896-98  .  . 

4,478,000 
4,742,000 
4,022,000 
3,541,000 

16,729,000 
16,545,000 
29,705,000 
30,218,000 

865,000 
2,198,000 
6,897,000 
8,527,000 

8,069,000 
18,627,000 
40,876,000 
60,507,000 

The  wheat  trade  of  Milwaukee  has  suffered  even  more  than  that  of 
Chicago.  In  1870-77  Milwaukee  shipped  more  wheat  than  Chicago,  or  a 
little  over  18,000,000  bushels  a  year.  At  present  its  shipments  rarely  rise 
to  4,000,000  a  year. 

On  the  other  hand,  the  receipts  of  grain  and  flour  at  Buffalo  rose  from 
an  average  of  66,000,000  bushels  a  year  in  1881-85, '°  120,000,000  bushels 
in  1S90,  and  to  an  annual  average  of  234,000,000  bushels  in  1 896-99. 


THE   WORKINGS   OF   COMPETITION  247 

corn  belt  were  shifting  toward  the  Southwest,  thus 
increasing  the  length  of  haul  to  Chicago  and  the 
The  Chicago  Rail-  East,  and  reducing  the  haul  to  Kansas 
ways  fight  for  City,  St.  Louis  and  the  Gulf  ports. 
^^^'^'^  Contemporaneously  the  centre  of  the 

spring  wheat  belt  moved  northwestward,  which 
tended  in  turn  to  shift  the  movement  of  this  sort  of 
wheat  from  Chicago  to  Duluth.  The  railways  lead- 
ing to  Chicago  had  to  redouble  their  efforts  to  arrest 
the  threatened  further  diversion  of  trade  to  southern 
as  well  as  northern  routes.  The  means  they  used 
was  a  change  in  the  method  of  marketing  grain.  Up 
to  this  time  grain  had  been  consigned  by  country 
buyers  to  commission  merchants  at  Chicago  and  had 
been  stored  in  the  public  warehouses,  paying  com- 
mission charges  and  storage  charges.  The  railways 
now  made  regulations  under  which  grain  could  be 
billed  through  from  points  west  of  Chicago  to  New 
York,  with  the  option  of  being  offered  for  sale  on  the 
track  in  Chicago.  If  sold,  the  grain  paid  the  local 
rate  to  Chicago;  if  not  sold,  it  could  be  reconsigned 
to  any  person  in  New  York,  Philadelphia  or  Balti- 
more. Twenty-four  hours  were  allowed  for  inspection 
and  sale  on  the  tracks  in  Chicago,  and  72  hours  for 
sale  and  removal.  In  this  way  it  was  made  possible 
to  avoid  the  payment  of  warehouse  charges  in  Chi- 
cago, to  reduce  from  3  weeks  to  3  days  the  time 
occupied  in  transfer,  and  to  give  the  shipper  in  the 
interior  the  benefit  of  the  through  rate  to  the  Atlantic 


248  RAILWAY  RATES 

coast,  which  was  2  cents  per  100  pounds  less  than  the 
local  rate  to  Chicago,  plus  the  rate  from  Chicago  east. 
These  improvements  in  handling  the  grain  traJ05c 
made  by  the  railways  leading  to  Chicago  were,  how- 
ever, soon  imitated  by  the  rival  roads  leading  to  Du- 
luth,  St.  Louis,  Kansas  City  and  other  points ;  and, 
accordingly,  in  1890,  the  Chicago  roads  adopted 
further  measures  to  carry  on  the  fight.  They  made 
arrangements  whereby  the  owners  of  the  public  ware- 
houses at  Chicago  became  buyers  and  sellers  of  grain, 
charging  for  their  services  much  less  than  the  com- 
bined commission  charge  and  storage  charge  for- 
merly collected.  These  warehousemen  and  dealers 
in  grain,  acting  in  their  new  capacity,  have  enormous 
capital  and  do  a  large  volume  of  business  on  a  narrow 
margin.  The  savings  which  they  can  make  allow 
them  to  become  formidable  competitors  for  grain 
that  under  the  old  methods  of  doing  business  would 
go  to  the  markets  to  the  northwest  and  to  the  south 
of  Chicago.  In  other  words,  the  former  commission 
merchants  at  Chicago  have  been  displaced,  or  are 
being  displaced,  in  order  that  the  new  order  of  ware- 
housemen may  act  in  effect  as  freight  solicitors  for 
the  railways  leading  to  Chicago  and  secure  to  them  a 
part  of  the  traffic  that  otherwise  would  go  elsewhere. 
The  competition  between  these  grain  dealers,  acting 
for  or  representing  rival  railways,  is  much  keener  than 
was  the  competition  between  the  former  buyers  who 
shipped  to  Chicago  for  sale  on  commission ;  and  the 


THE   WORKINGS   OF   COMPETITION 


249 


cost  of  getting  the  grain  from  the  producer  to  the  con- 
sumer has  been  correspondingly  reduced.  And  this 
is  to  the  advantage  of  the  producer.  The  difference 
between  the  farm  price  of  wheat  and  the  Chicago 
price  is  materially  less  than  it  was  15  years  ago  * 

Since  1890  or  thereabouts,  the  Illinois  Central  Rail- 
road and  a  number  of  roads  leading  from  Kansas, 

Missouri  and  Nebraska  to  New  Or- 
Gtdf  Torts    '*      leans,     Galveston    and    other    Gulf 

ports  have  been  making  great  efforts 
to  divert  a  part  of  the  export  and  import  trade  of  the 
Central  West  and  Southwest  from  the  Atlantic  to  the 
Gulf.f  That  means,  of  course,  a  breaking  away 
from  the  old  channel  of  trade  by  way  of  Chicago  and 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products,  pp.  7-10  and  pp.  70-77;  and  Report  of  the  Industrial  Commis- 
sion on  Agriculture  and  Agricultural  labor,  pp.  295-300. 

t  Report  and  Opinion  of  the  Interstate  Commerce  Commission  in  the 
Matter  of  Differential  Freight  Rates  to  and  from  North  Atlantic  Ports, 
April  27,  1905. 

Proportion  borne  by  the  exports  of  wheat  and  corn  from  New  Orleans 
and  Galveston  to  the  total  exports  of  wheat  and  corn  from  the  Atlantic  and 
Gulf  ports. 


Wheat 

Corn 

New  Orleans 

Galveston 

New  Orleans 

Galveston 

Per  Cent 

Per  Cent 

Per  Cent 

Per  Cent 

1889-90    .    . 

5-1 

16.2 

1891-95   .   . 

10.7 

0.6 

II.9 

0.6 

I896-I900     . 

1 0.0 

10.5 

13-5 

3.0 

I90I 

16.S 

10.6 

13.2 



1902 

12.9 

9.2 

15.2 

6.0 

1903    . 

14.0 

234 

15.0 

4.8 

1904    • 

8.8 

16.7 

14.0 

7.8 

250  RAILWAY   RATES 

counter  efforts  to  prevent  it.  The  grain  grown  in 
Missouri  south  of  the  Missouri  River,  in  the  southern 
half  of  Kansas  and  in  the  territory  south  of  these 
two  States  will  hereafter  inevitably  be  exported 
much  more  largely  by  way  of  the  Gulf  ports.  But 
the  grain  grown  in  northern  Kansas,  southern  Ne- 
braska, southwestern  Iowa  and  northwestern  Mis- 
souri will  for  a  long  time  be  keenly  ''contested" 
traffic,  going  now  by  the  one  route,  now  by  the  other. 
Similarly,  the  traffic  originating  in  Europe  or  on  the 
Atlantic  seaboard,  and  destined  for  the  Central  West 
and  Southwest,  will  be  the  object  of  an  intense  rivalry 
between  the  railways  leading  from  the  Atlantic  and 
those  leading  from  the  Gulf  ports. 

The  rate  to  the  eastern  seaboard  on  grain  from 
points  west  of  the  Mississippi  River  consists  of  two 
parts :  the  local  rate  to  the  river  and  the  through  rate 
thence  to  the  Atlantic.  Nominally  the  through  rate 
from  the  river  is  always  ii6  per  cent  of  the  through 
rate  from  Chicago,  because  the  distance  from  the 
river  is  ii6  per  cent  of  that  from  Chicago.  On 
wheat  destined  for  domestic  consumption,  this  ratio 
of  the  rates  from  the  Mississippi  River  and  from 
Chicago  has  always  been  fairly  well  maintained ;  but 
on  wheat  for  export  it  has  often  been  ignored.  Since 
1893  the  divergence  between  the  rates  on  grain  for 
domestic  consumption  and  on  grain  for  export  has 
become  each  year  wider  and  wider.  In  1898  the 
Atlantic  seaboard  lines  made  the  published  rate  on 


THE  WORKINGS   OF   COMPETITION  251 

wheat  for  export  from  the  Mississippi  River  the  same 
as  the  rate  from  Chicago;  and  in  1899  they  lowered 
the  Mississippi  River  rate  to  85  per  cent  of  the  Chi- 
cago rate.  Under  that  arrangement,  grain  for  export 
paid  13 J  cents  per  100  pounds  from  the  Mississippi 
River,  and  16  cents  from  Chicago;  while  grain  for 
consumption  in  the  East  paid  17I  cents  from  Chicago, 
20^  cents  from  the  Mississippi  if  it  came  from  west  of 
the  river,  and  24^  cents  if  it  originated  at  the  river. 
These  discriminations  in  favor  of  grain  grown  west 
of  the  Mississippi  River  arose  from  the  fact  that  the 
competition  of  the  Gulf  roads  did  not  extend  to  grain 
grown  east  of  the  Mississippi  River. 

The  Atlantic  seaboard  roads  made,  during  the 
years  1898  and  1899,  a  final  but  unsuccessful  effort 
to  defeat  the  attempt  of  the  Gulf  roads  to  divert 
permanently  to  the  Gulf  ports  a  part  of  the  export 
and  import  trade.  The  actual  rates  on  grain  be- 
came completely  demoralized,  although  it  was  a 
time  when  the  volume  of  traffic  was  such  that  none 
of  the  roads  had  cars  enough  to  accommodate  its 
business  without  serious  delays.  Millions  of  bushels 
of  grain  were  carried  from  the  Mississippi  River  to 
the  Atlantic  for  7I  cents  a  100  pounds,  or  less  than 
I J  mills  per  ton-mile.  The  New  York  Central  Rail- 
road carried  grain  from  Buffalo  to  New  York  City 
for  if  mills  per  ton-mile,  or  even  less,  the  usual 
rate  having  been  about  2^  mills.*    This  competi- 

*  T/ie  Railroad  Gazette,  December  29,  1899,  and  February  9,  1900. 


252  RAILWAY  RATES 

tion  for  the  grain  traffic  finally  became  so  destruc- 
tive that  the  President  of  the  Chesapeake  and  Ohio 
Railroad,  who  had  a  reputation  for  the  greatest 
courage  in  cutting  rates,  withdrew  from  the  fight  at 
several  competitive  points  where  rates  were  lowest. 

To  meet  the  new  conditions  of  transportation 
charges,  brought  about  in  the  first  instance  by  the  era 
The  Competition  ^^  ^ow  prices  ushered  in  by  the  crisis  of 
for  the  Markets  1 893  and  Continued  by  the  rise  of  the 
promotes  Rail-  competition  of  the  Gulf  roads,  the  Bal- 
timore and  Ohio  Railroad  made  revo- 
lutionary changes  in  its  facilities  for  handling  traffic, 
by  reducing  grades  and  curves  and  putting  on  heavier 
rolling  stock.  The  Illinois  Central  Railroad,  on  its 
side,  spent  several  millions  upon  terminal  facilities 
in  New  Orleans  and  brought  into  play  solid  train- 
loads  of  2000  tons  of  paying  freight.  The  New  York 
Central,  in  turn,  strengthened  its  road-bed  in  order 
that  it  might  build  "mogul"  locomotives  capable  of 
hauling  train-loads  of  2400  tons.  As  the  result  of 
these  magnificent  economies,  the  longer  the  low  rates 
were  in  force  the  less  complaint  there  was  that  they 
were  not  remunerative.  Even  the  roundabout  roads 
and  those  weakest  financially  adopted  many  of  the 
improvements  introduced  by  the  oldest  and  strongest 
roads.  In  their  titanic  wrestle  the  contestants  rose 
like  Antaeus,  after  each  fall  in  greater  strength.  The 
obvious  distributive  outcome  was  the  establishment 
of  the  claim  of  the  Gulf  roads  to  an  increased  share 
of  the  export  and  import  trade  of  the  country,  and 


THE   WORKINGS   OF   COMPETITION 


253 


a  new  basis  of  adjustment  of  the  charges  on  grain 
for  export  and  for  domestic  use.  But  there  were 
also  effects  which  do  not  lie  so  much  on  the  surface. 
In  consequence  of  the  unprecedently  low  price  of 
wheat  in  the  period  1892-95,  the  area  under  wheat 
in  the  United  States  fell  from  an  average  of  38,200,- 
000  acres  for  the  years  1889-92  to  34,500,000  acres  in 
1893-96.  At  the  same-time  the  area  under  corn  jumped 
from  an  average  of  71,000,000  acres  in  the  years 
1890-94  to  82,100,000  acres  in  1895.  The  farmers 
of  the  Middle  West  were  seeking  relief  from  the  low 
price  of  wheat  in  the  comparatively  high  price  of 
meats ;  they  were  turning  from  wheat  to  corn,  which 
is  used  for  fattening  cattle  and  hogs.  But  under 
the  stimulus  of  the  rise  in  the  price  of  wheat  which 
began  in  the  latter  half  of  1896  the  area  under  wheat 
again  rose  from  34,600,000  acres  in  1896  to  39,500,000 
acres  in  1897  and  to  44,100,000  in  1898.  As  a  matter 
of  fact,  the  farm  price  of  wheat  receded  materially  in 
1898,  but  it  did  not  fall  fully  to  the  low  level  of  1893- 
95,  and  the  great  increase  in  the  area  under  wheat 
effected  while  prices  were  high  was  maintained.* 

*  Statistical  Abstract  of  the  United  States,  1 901. 


1893-96 
1897-1900 


Average 
Annual  Pro- 
duction OF 

Wheat 
(in  Millions  of 

Bushels) 


438 
569 


Average 
Annual  Ex- 
ports of  Wheat 
(in  Millions  of 
Bushels) 


210 


1893-95 
1896-97 
I 898- I 900 


Average  of  the 
Farm  Price  of 

Wheat  on 
December  ist 


51.3  cents 
76.7  cents 
59.5  cents 


254  RAILWAY  RATES 

The  area  under  corn  also  remained  at  the  high  figure 
reached  in  1895,  and  the  question  arose  whether  it 
would  be  possible  to  continue  to  find  at  remunerative 
prices  a  market  for  the  vastly  augmented  quantities 
of  corn  and  wheat. 

Just  one-half  of  the  increase  in  the  production  of 
wheat  effected  in  189  7-1 900  was  exported,  our  ex- 
ports of  wheat  rising  from  145,000,000  bushels  in 
1893-96  to  210,000,000  bushels  in  1897-1900.  Of 
our  total  crop  of  corn  in  1893-96,  3.5  per  cent  was 
exported ;  but  in  1897-1901,9.8  per  cent  was  exported, 
largely  because  at  that  time  our  exporters,  taking  ad- 
vantage of  poor  harvests  in  Europe,  were  teaching 
the  European  stock-raisers  the  cheapness  and  utility 
of  corn  as  material  for  fattening  cattle.  In  1896  and 
1897  the  price  of  wheat  in  Liverpool  was  well  sus- 
tained, in  consequence  of  industrial  prosperity  in 
Europe,  on  the  one  hand,  and  because  of  deficient 
supply,  owing  to  poor  crops  in  Argentina,  Australia, 
India,  Russia  and  the  Danubian  Principalities,  on 
the  other  hand.  In  1898,  however,  the  foreign  situ- 
ation changed,  good  crops  having  been  obtained  in 
the  countries  just  enumerated,  and  the  price  of  grain 
in  Liverpool  fell  off.  Had  it  not  been  for  the  oppor- 
tune reductions  in  the  cost  of  carrying  American  wheat 
from  the  farm  to  the  Liverpool  steamship,  the  farmer 
in  the  United  States  would  have  been  hard  hit  in- 
deed. As  it  was,  the  reduction  in  transportation 
charges  on  our  railways  in  part  neutralized  for  the 


THE  WORKINGS   OF   COMPETITION  255 

American  producer  of  wheat  the  fall  in  the  Liver- 
pool price.  The  farm  price  (as  already  shown)  was 
made  more  nearly  to  approximate  to  the  Chicago 
price,  and  the  Chicago  price  was  brought  nearer  to 
the  Liverpool  price,  which  latter,  whether  the  Liver- 
pool price  rises  or  falls,  means  a  better  position  for 
the  American  producer  of  export  wheat  than  would 
otherwise  be  possible.  This  point,  as  to  the  efifect  of 
reductions  of  railway  rates  on  the  price  of  wheat, 
needs  to  be  somewhat  further  developed. 

As  the  result  of  the  modern  means  of  transporta- 
tion and  communication,  together  with  the  modern 
Factors  control-  systcm  of  speculation  in  the  great 
ling  the  Farm  agricultural  Staples,  there  is  estab- 
Price  of  Grain  j-gj^^^  ^  world's  market-price  for  wheat 
at  Liverpool  —  the  chief  place  through  which  the 
supply  of  the  surplus  wheat-producing  countries 
reaches  its  outlet,  the  wheat-deficit  countries  of  west- 
ern Europe.  This  Liverpool  price  is  fixed  at  any 
time  at  the  point  at  which  total  supply  and  total  de- 
mand will  equalize;  and,  being  so  determined,  the 
price  at  any  of  the  primary  markets  in  the  surplus 
countries  is  a  coefficient  of  this  price.  That  is  to 
say,  the  world's  market  price  at  Liverpool  being 
established  as  the  resultant  of  many  forces,  the  local 
price  of  wheat  in  such  leading  collecting  markets  as 
Chicago,  Buenos  Ayres  and  Odessa  at  any  time  is 
obtained  by  deducting  from  the  Liverpool  price  the 
cost  of  transportation,  insurance  and  other  charges. 


256  RAILWAY   RATES 

With  these  data  for  our  problem,  let  us  suppose 
that  the  total  charge  for  laying  down  Chicago  wheat 
in  Liverpool  were  suddenly  reduced  from  40  cents 
to  30  cents  per  bushel.  This  disturbance  of  the  pre- 
existing balance  of  forces  would,  if  unresisted,  de- 
press the  Liverpool  price  by  10  cents,  through 
hastening  and  augmenting  the  movement  of  wheat 
from  the  farm  to  Chicago  and  from  Chicago  to  Liv- 
erpool. But  there  would  be  brought  into  play  cer- 
tain counter  forces  which  would  check  the  fall  of  the 
Liverpool  price.  On  the  one  hand,  the  European 
demand  would  increase,  as  the  price  fell ;  and,  on  the 
other  hand,  the  supply,  especially  from  the  other  sur- 
plus countries  besides  the  United  States,  would  de- 
crease, for  the  existing  stock  would  be  held  back. 
To  satisfy  the  conditions  of  equilibrium  between 
demand  and  supply,  the  decline  of  the  Liverpool 
price  would  be  arrested  at  the  figure,  let  us  say,  of 
2  cents  per  bushel  less  than  the  old  price  which  pre- 
vailed before  the  disturbance.  Then,  as  the  Chicago 
wheat  merchant  could  sell  in  the  Liverpool  market 
at  only  2  cents  reduction  in  price,  obviously  the  re- 
duction of  10  cents  in  the  cost  of  access  to  that  market 
would  mean  a  bonus  of  8  cents  in  his  pocket.  But 
this  he  could  not  keep  for  himself.  The  forces  of 
domestic  competition  could  be  depended  upon  to 
compel  him  to  hand  most  of  it  on  to  the  farmer,  and 
the  Chicago  market  price  would  rise  by  nearly  8 
cents. 


THE  WORKINGS   OF  COMPETITION  257 

Thus  far  we  have  had  in  view  only  the  temporary 
effects  of  a  reduction  in  the  cost  of  transporting  wheat 
from  a  particular  primary  market  to  the  general 
world's  market  at  Liverpool;  but  the  same  princi- 
ples hold  good  as  to  the  permanent  effects.  If  an 
exporting  country  does  not  increase  its  acreage  after 
such  a  reduction,  it  may  keep  its  higher  price  and 
profit  indefinitely  or  until  its  competitors  imitate  its 
improvements.  But  if  it  extends  its  cultivation, — 
if  it  takes  up  the  slack  of  the  cheaper  means  of  mar- 
keting by  augmenting  production,  —  obviously  its 
price  will  decline  and  may  in  time  even  stand  abso- 
lutely at  a  lower  figure  than  ever  before.  But  in  either 
case  it  is  benefited  by  the  lower  cost  of  transporta- 
tion: it  either  does  the  same  business  at  a  higher 
price,  or  (because  it  sees  fit  to  do  so)  a  larger  business 
at  the  same  or  a  lower  price. 

This  whole  matter  of  the  division,  temporarily 
or  permanently,  of  the  advantage  of  a  new  econ- 
omy in  any  branch  of  trade  between  an  export- 
ing and  an  importing  country  is  highly  complicated 
and  in  any  specific  case  the  proportions  cannot  be  ex- 
actly determined  before  the  event.  But  it  may  at 
least  be  laid  down  as  a  general  rule  that,  when  sev- 
eral sources  of  supply  are  drawn  upon  by  a  common 
market,  a  particular  fall  in  the  cost  of  transport  from 
one  of  them  will  produce  more  local  than  central  dis- 
turbance —  will  raise  the  price  in  the  tributary  mar- 
ket more  than  it  will  depress  it  in  the  emporium. 


258  RAILWAY  RATES 

Another  way  of  putting  it  is  to  say  that,  as  long  as 
several  sources  of  supply  are  drawn  upon  to  satisfy 
the  demand  of  a  common  market,  the  price  will  be 
determined,  apart  from  variations  of  the  seasons,  by 
the  conditions  of  production  in  the  weakest  of  them 
(the  "marginal"  source),  and  the  advantages  which 
the  stronger  ones  enjoy  will  be  manifested  in  varying 
amounts  of  bonus.  Apart  from  any  special  inquiry 
into  fact  and  theory,  there  is  certainly  no  occasion 
to  assume  that  a  particular  reduction  of  the  cost  of 
transportation  of  wheat  by  American  railways,  or 
Russian  railways,  or  Argentine  railways,  as  the  case 
may  be,  redounds  exclusively,  or  even  chiefly,  to  the 
benefit  of  the  European  consumer. 

In  1899  the  Interstate  Commerce  Commission, 
upon  a  complaint  made  by  the  Board  of  Trade  of 
The  Interstate  ^^^  city  of  Chicago,  investigated  the 
Commerce  Com-  relative  ratcs  then  prevailing  on  grain 
mission  versus  the  fQj.  export  and  grain  for  domestic  con- 

Western  Farmers  4^-       ^      t^.  •      j    ^.i,  4.4. 

sumption.*  It  exammed  the  matter 
on  the  basis  of  the  respective  rights  of  the  producer  of 
grain,  those  of  the  domestic  consumer  (that  is,  the 
manufacturer  on  the  Atlantic  coast)  and  those  of  the 
railways.  The  Commission  was  of  the  opinion  that, 
unless  the  lower  rates  on  export  grain  redounded  to 
the  distinct  advantage  of  the  producer  of  grain,  they 

*  Decisions  of  the  Interstate  Commerce  Commission,  Vol.  VIII,  p.  214, 
In  the  Matter  of  Relative  Rates  upon  Export  and  Domestic  Traffic  in 
Grain  and  Grain  Products,  and  of  the  Publication  of  Tariffs  relating  to 
Such  Traffic. 


THE  WORKINGS   OF   COMPETITION  259 

could  not  be  justified ;  for  they  subjected  the  Ameri- 
can consumer  to  a  distinct  disadvantage,  as  compared 
with  his  competitor,  the  European  manufacturer. 
On  this  last  point  it  said:  "The  foreigner  is  to  an 
extent  in  competition  with  the  American.  Both  are 
engaged  in  the  production  of  articles  sold  in  the  same 
market,  either  abroad  or  in  the  United  States.  If 
the  Englishman  can  procure  the  necessities  of  life 
cheaper  than  his  American  competitor,  that  gives  him 
the  advantage.  A  few  cents  per  hundred  pounds  in 
the  price  of  his  flour  would  not  be  of  itself  a  matter 
of  great  consequence,  but  the  same  sort  of  a  prefer- 
ence applied  to  all  articles  which  enter  into  his  daily 
support,  as  well  as  to  the  product  of  his  labor,  may 
determine  whether  he  or  the  American  can  manu- 
facture for  our  own  market  even." 

The  Commission  next  considered  whether  the 
exceptionally  low  export  rates  on  grain,  the  result  of 
the  rate  war  already  described,  had  redounded  to  the 
advantage  of  the  producer  or  not,  and  whether  the 
railways  had  been  injuring  themselves  thereby.  Its 
conclusion  was:  "The  American  producer  has  not 
been  materially  benefited  by  them;  our  railways 
have  sacrificed  millions  of  dollars  without  producing 
any  real  effect  upon  the  flow  of  traffic,  .  .  .  This  de- 
pletion in  revenue  has  been  a  donation  to  the  for- 
eigner. It  is  impossible  more  strongly  to  emphasize 
the  folly  of  this  whole  proceeding  than  by  the  mere 
statement  of  it,  .  .  ." 


260  RAILWAY  RATES 

This  extraordinary  conclusion  the  Interstate  Com- 
merce Commission  reached  by  way  of  a  theory  of 
Unsound  Eco-  international  markets  and  prices  that 
no7nic  Reasoning  will  not  bear  investigation.  It  as- 
ofthe  Commission  ^^^^^  ^j^^^  ^j^g  Statement  that  Amer- 
ican grain  was  influencing,  along  with  the  other 
factors  of  supply,  the  price  of  grain  in  the  foreign 
market,  was  equivalent  to  saying  that  the  price  of 
grain  in  the  foreign  market  was  the  price  in  the  Amer- 
ican market  plus  the  price  of  transportation  from  the 
United  States  to  Europe.  And  this  initial  error  led 
to  the  further  mistaken  notion  that  the  statements 
of  the  railway  men,  to  the  effect  that  the  exception- 
ally low  rates  on  export  grain  had  been  made  be- 
cause of  the  competition  between  the  two  groups  of 
railways  —  those  leading  to  the  Gulf  and  those  lead- 
ing to  the  Atlantic  ports  —  and  not  because  of  the 
state  of  the  foreign  market,  gave  support  to  the  in- 
ference that,  if  there  had  been  no  cuts  on  export  rates, 
the  price  of  grain  in  the  American  market  would  have 
remained  unchanged  and  the  price  of  grain  in  the 
European  market  would  have  been  higher  than  it 
was  by  the  amount  by  which  the  export  rates  had 
been  cut.  In  short,  this  body,  sitting  in  judgment 
on  the  justification  of  the  course  of  a  large  part  of 
the  world's  commerce,  took  the  relativelv  fixed  mar- 
ket  (Liverpool)  to  be  the  relatively  variable  one;  it 
took  the  market  which  is  determined  (Chicago)  to 
be  the  market  which  does  the  determining ;  and  con- 


THE   WORKINGS   OF   COMPETITION  261 

sequently  it  added  the  cost  of  transportation  where 
it  should  not  (to  the  Chicago  price),  instead  of  de- 
ducting it  where  it  should  (from  the  Liverpool  price), 
in  order  to  find  out  what  efifects  were  produced  — 
whether  the  American  farmer  was  benefited  or  not 
—  by  reductions  in  cost  of  transportation.  The  kind 
of  reasoning  which  the  Commission  erroneously  ap- 
plied at  the  American  terminus  of  the  international 
wheat  traffic  does  apply  correctly  at  the  European 
terminus.  The  price  of  wheat  in  the  secondary  dis- 
tributive markets  in  Europe  is  found  approximately 
by  adding  the  cost  of  transportation  from  Liverpool 
to  the  Liverpool  price.  Even  the  European  imports 
of  wheat  which  do  not  pass  through  Liverpool  have 
their  price  determined  upon  that  basis. 

The  Commission  issued  no  order  in  the  case  just 
reviewed,  because  it  thought  the  testimony  indicated 
that  the  "present  disparities  between  domestic  and 
export  rates  will  not  become  permanent."  This 
subject  comes  up  again  in  another  place. 

Let  us  now  turn  from  wheat  to  two  other  great 
staples  of  the  United  States  —  cotton  and  iron. 
The  problems  in  markets  and  rates  presented  by 
the  cotton-growing  industry  are  similar  to  those  that 
have  arisen  in  connection  with  the  growing  of  grain. 
Cotton  is  the  staple  of  the  one-crop  farmer  of  the 
South  and  extreme  Southwest,  and  the  great  bulk  of 
the  crop  has  to  find  a  market  at  a  great  distance  from 
where  it  is  raised.     Nearly  70  per  cent  of  American 


262 


RAILWAY   RATES 


cotton  is  exported  to  Europe,  about  20  per  cent  is 
sent  to  the  Northeastern  and  North-Central  States, 
and  about  1 2  per  cent  remains  in  the  South  *  Under 
rapidly  falling  prices  it  has  been  imperative  for  the 
southern  planter  to  have  increasing  access  to  the  soil 
best  adapted  to  cotton.  This  necessary  movement 
of  the  centre  of  the  cotton  belt  to  the  west  of  the  Mis- 
sissippi River  has  been  made  possible  by  the  rail- 
ways.f 

Cotton  finds  its  way  to  the  final  market  by  way  of 
several  Gulf  and  Atlantic  coast  ports,  and  by  way  of 
a  great  number  of  interior  points,  such  as  Memphis, 
Montgomery,  Shreveport,  St.  Louis  and  Cincinnati. 
There  is  scarcely  a  place  on  the  Atlantic  slope  and 
the  Gulf  slope  of  the  cotton  States  that  does  not  en- 
joy the  advantage  of  competition  between  rival  mar- 
keting centres  and  between  railways  as  carriers  to 
those  markets,  as  well  as  between  railways  and  coast 
vessels  as  carriers  to  northern  points  of  export  or 
consumption.      The   many-sided    struggle   between 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products. 

Proportion  of  American  Cotton  consumed  in 


1859 

1869 

1879 

1889 

1899 

Europe 

The  North 

The  South 

77% 
19.4% 
3-6% 

70% 

27% 

3% 

64% 

32% 

4% 

68% 

24% 

8% 

69% 
19% 
12% 

t  The  Cotton  Trade  of  the  United  States  and  the  IVorWs  Cotton  Supply 
and  Trade,  from  The  Summary  of  Commerce  and  Finance  for  March, 
1900;  and  Report  of  the  Industrial  Commission  on  the  Distribution  of 
Farm  Products. 


THE   WORKINGS   OF   COMPETITION 


263 


marketing  centres,  railways  and  coast  steamers* 
puts  the  whole  movement  of  cotton  under  the  stress 
of  tremendous  competitive  forces,  to  the  great  ad- 
vantage of  the  planter,  from  the  time  the  cotton  leaves 
the  plantation  or  farm  until  it  reaches  the  factory 
in  the  United  States  or  Europe.  It  has  made  the 
charges  on  the  transportation  of  cotton  among  the 
lowest  in  the  world,  has  crowded  out  many  middle- 
men and  has  greatly  reduced  the  commissions  of 
those  who  have  survived. 

But  in  the  cotton  traffic,  as  in  all  other  kinds  of 
traffic,  there  are  constant  complaints  from  persons 
,,     ^  ,  or  localities  that  are  adversely  affected 

New  Orleans  ^  •' 

demands  the  Dis-  by  the  changes  which  are  necessary  in- 
tance  Tariff  on  cidents  of  progress.  For  example,  in 
1887  the  New  Orleans  Cotton  Ex- 
change asked  the  Interstate  Commerce  Commission  to 
rule  that  rates  per  ton  per  mile  on  cotton  from  points 
in  the  cotton-growing  district  to  New  Orleans  should 
be  no  higher  than  rates  per  ton-mile  from  the  cotton- 
growing  districts  to  New  York  and  Boston :  f  in  other 

*  Comparative  Movement  of  Cotton  Coastwise  and  Overland 


1858 

1878 

1888 

1899 

Total  bales   moved   coastwise 

and  overland 

Per  cent  moved  coastwise  .     . 
Per  cent  moved  overland   .     . 

770,000 

99 
I 

2,314,000 
81 
19 

3,230,000 
70 
30 

3,390,000 
60 
40 

t  Decisions  of  the  Interstate  Commerce  Commission,  Vol.  II;  The  New 
Orleans  Cotton  Exchange  v.  The  Cincinnati,  New  Orleans  and  Texas 
Pacific  Railway  Co. 


264  RAILWAY  RATES 

words,  it  asked  for  a  distance  tariff.  The  Cotton 
Exchange  found  in  the  low  rates  to  the  North  and 
East  the  sole  reason  for  the  fact  that  of  recent  years 
the  receipts  of  cotton  at  New  Orleans  had  not  ex- 
ceeded one-fourth  of  the  total  cotton  crop,  whereas 
down  to  i860  the  receipts  had  been  not  less  than  one- 
half  of  the  cotton  crop.  It  complained  that  the  rates 
in  question  subjected  New  Orleans  to  unreasonable 
disadvantage,  and  gave  undue  preference  to  New 
York  and  Boston.  The  Commission  declined  to 
make  the  ruling  requested,  and  said  by  way  of  obiter 
dicta  that  the  complainant  apparently  took  no  ac- 
count of  the  comparatively  recent  construction  of 
several  all-rail  lines  from  the  cotton  fields  to  the 
eastern  ports  and  markets.  New  Orleans  was  not 
the  ultimate  destination  of  the  cotton  received.  Cot- 
ton was  sent  thither  for  distribution  only  —  to  be 
forwarded;  and  the  business  of  distribution  was 
largely  directed  and  controlled  by  economy  in  time 
and  cost.  Any  view  was  faulty  which  failed  to  in- 
clude the  new  conditions  among  the  causes  influ- 
encing the  movements  of  cotton  in  the  past  fifteen 
years.  Twelve  years  later,  however,  when  dealing 
with  the  rate  disturbances  precipitated  by  the  Gulf 
lines,  the  Commission  made  no  mention  of  consid- 
erations such  as  these.  It  took  the  position  that  no 
changes  in  the  geography  of  the  railroads  could 
justify  an  impairment  of  the  advantage  that  Chicago 
and  the  State  of  Illinois  had  enjoyed  over  the  trans- 


THE  WORKINGS   OF  COMPETITION  265 

Mississippi  cities  and  states  before  the  coming  into 
the  field  of  the  Gulf  railroads. 

The  New  Orleans  Cotton  Exchange  also  com- 
plained of  the  practice  of  "floating  cotton,"  which 
diminished  the  business  of  compressing  cotton  and 
lending  money  upon  cotton  at  New  Orleans.  In  the 
early  days  there  were  comparatively  few  places  which 
had  cotton-compressing  plants,  and  to  those  places 
the  cotton  had  to  be  brought  not  only  to  be  com- 
pressed, but  also  to  be  graded,  to  receive  advances  of 
money  or  credit  and  to  be  reshipped  on  through  bills 
of  lading  to  its  final  destination.  Subsequently, 
cotton  compresses  were  established  at  innumerable 
railroad  stations  and  small  towns,  and  the  roads 
introduced  the  practice  of  "floating  cotton."  Under 
this  new  arrangement  cotton  can  be  shipped  on 
through  bills  of  lading  to  any  point,  with  the  privi- 
lege of  stopping  at  the  nearest  station  with  a  cotton 
compress  to  be  graded  and  compressed.  The  coun- 
terpart of  this  practice  in  the  North  is  "milling  in 
transit."  When  compressed,  cotton  commands  lower 
rates  of  transportation  by  rail  and  by  water;  and 
when  graded,  money  can  be  borrowed  upon  the  bills 
of  lading.  The  practice  of  floating  cotton  obviously 
did  away  with  the  former  necessity  of  sending  cot- 
ton to  New  Orleans,  Memphis  and  other  dominant 
primary  cotton  markets,  for  the  purpose  either  of 
having  it  compressed  or  of  borrowing  money  upon 
it.     It  interfered  with  old-established  interests  and 


266  RAILWAY  RATES 

led  to  several  complaints  before  the  Interstate  Com- 
merce Commission  * 

The  Railroad  Commission  of  the  State  of  Texas, 
in  turn,  looks  askance  at  the  low  ton-mile  rates  on 

Texas  seeks  indi-  ^0"^^  ^^^"^  P^i^^s  in  Texas  to  New- 
rectiy  to  regidate  port  News,  Baltimore,  Philadelphia, 
Interstate  Com-  ^^^  York  and  Boston.  It  contends 
^^'^'^^  that  the  Texan  Gulf  ports  are  the  nat- 

ural route  for  Texan  cotton,  and  that  the  low  ton- 
mile  rates  to  the  Atlantic  seaboard  "force  commerce 
out  of  its  natural  channel  and  prevent  the  buUding  up 
of  commercial  cities  on  our  [Texan]  coast,  thus  de- 
priving the  State  of  its  legitimate  commercial  ad- 
vantages, and  of  the  wealth  and  revenues  which 
would  result  from  allowing  the  commerce  to  go  by 
the  cheapest  line  of  transportation."  For  some  time 
after  this  Commission  was  established,  it  entertained 
the  idea  of  prescribing  uniform  mileage  rates  for  the 
transportation  of  cotton  carried  as  intra-State  traffic ; 
but  when  it  found  that  its  scheme  would  not  merely 
affect  New  York  and  Boston,  but  would  "revolu- 
tionize the  commercial  map  of  Texas  so  far  as  the 
cotton  trade  w^as  concerned,"  and  would  bring  down 
on  the  Commission  itself  a  storm  of  local  protests, 
it  abandoned  the  project  |  so  far  as  intra-State  traffic 

*  Decisions  of  the  Interstate  Commerce  Commission,  Vol.  VIII,  In  the 
Matter  of  Alleged  Unlawful  Hates  and  Practices  in  the  Transportation  of 
Cotton  by  the  Kansas  City,  Memphis  and  Birmingham.  Railroad  Co.,  and 
Others,  March,  1899. 

t  Third  and  Fourth  Annual  Reports  of  the  Railroad  Commission  fof 
the  State  of  Texas,  for  the  years  1894  and  1895. 


THE  WORKINGS   OF  COMPETITION  267 

is  concerned.  But  the  Commission  comparatively 
recently  has  warned  the  railways  not  to  carry  cotton 
too  cheaply  to  New  Orleans  and  other  ''foreign" 
ports,  lest  the  Commission  be  obliged  to  punish  them 
by  using  its  power  to  fix  rates  on  intra-State  traffic  in 
such  a  way  as  to  reduce  seriously  the  earning  power 
of  the  railways. 

In  those  southern  States  in  which  cotton  manufac- 
turing has  been  established  *  the  belief  is  rather  com- 
mon that  the  low  through  rates  on  cotton  shipped  to 
the  North,  for  export  or  domestic  consumption,  cause 
the  railways  to  keep  the  local  rates  high  and  thus 
injure  the  southern  mills.  This  belief  is  the  more 
strongly  and  commonly  held  inasmuch  as  in  some 
instances  the  rates  from  primary  collecting  points 
to  southern  consumption  points  are  absolutely  higher 
than  the  rates  to  northern  points.  In  1900,  for  ex- 
ample, the  rates  on  cotton  from  Memphis  to  Boston 
and  New  York  were  respectively  55I  cents  and  57I 
cents ;  whereas,  at  the  same  time,  the  rates  from  Mem- 
phis to  the  mills  in  the  Carolinas  were  59I  cents. 
One  reason  for  this  anomaly  was  that  competition  for 
traffic  to  Boston  and  New  York  was  keen,  owing  to 
the  fact  that  the  overland  traffic  in  cotton  to  north- 
ern points  was  carried  largely  in  cars  that  had  brought 
general  freight  south  and  had  to  carry  cotton  or  re- 
turn empty.  Another  reason  was  that  the  northern 
roads  threatened  a  rate  war,  if  the  southern  roads 

*  Compare  foot-note  on  p.  268. 


268  RAILWAY  RATES 

lowered  their  ^^lemphis-Carolina  rates  to  correspond 
with  their  own.  But  still  a  further  reason,  and  the 
chief  one,  was  that  the  railroads  leading  to  the  Caro- 
lina mills  were  loath  to  reduce  the  through  rates  from 
Memphis,  because  they  feared  the  reduction  would 
be  used  against  them,  by  public  opinion  and  State 
railroad  commissions,  to  compel  a  lowering  of  the 
local  rates  on  cotton  from  points  near  at  hand  *  As 
they  are  not  financially  strong,  the  southern  roads 
do  not  feel  justified  in  making  reductions  in  local 
rates  which  would  not  meet  with  quick  response 
in  growth  of  traffic,  thus  speedily  compensating 
them  for  the  initial  loss  in  revenue  from  the  direct 
effect  of  the  reductions;  and  what  they  do  not  care 
to  do  at  their  o\\ti  discretion  they  naturally  do  not 
like  to  have  forced  upon  them.  This  subject  of 
through  and  local  rates  on  cotton  hauled  to  the  south- 
em  mills  we  shall  discuss  again. 

The  history  of  the  iron  industry  in  the  United 
States  affords  several  striking  examples  of  changes 
The  United  states  which  meant  the  building  up  of  prop- 
contrasted  with  erty  valucs  and  business  interests 
Germany  j^^    ^^^   region  and  a  slackening  in 

their  rate  of  growth,  or  even  in  some  cases  their  com- 
plete destruction,  in  another.     It  suggests  in  a  strik- 


*  See  Report  of  the  Industrial  Commission  on  Transportation,  Vol.  IX, 
testimony  of  Mr.  J.  S.  Davant,  Commissioner  of  the  Memphis  Freight 
Bureau;  also  the  testimony  of  Mr.  S.  C.  Dunlap. 


THE  WORKINGS  OF  COMPETITION  269 

ing  manner  how  the  development  of  this  country- 
would  have  been  paralyzed,  had  we  entered  upon  the 
federal  regulation  of  railway  rates  at  the  close  of  the 
Civil  War,  and  had  we  thus  been  drawn  into  the  con- 
flict of  sectional  interests  into  which  Germany  has 
been  drawn  —  a  conflict  which  would  ultimately 
have  forced  the  Government  of  the  United  States, 
as  it  has  forced  that  of  Prussia,  to  announce  that 
it  could  not  adjust  rates  in  such  a  way  as  to 
give  free  play  to  the  natural  advantages  possessed 
by  one  place  or  region  over  another  in  the  pro- 
duction of  iron  and  steel,  lest  the  Federal  Govern- 
ment be  charged  with  preferring  one  region  to 
another. 

The  first  of  the  changes  in  the  iron  and  steel  in- 
dustry —  a  phase  of  the  progressive  shifting  of  the 
industry  from  East  to  West  —  came  about  through 
the  substitution  of  anthracite  coal  for  charcoal  in  the 
smelting  of  iron  ores.  The  anthracite  process  was 
introduced  in  the  last  years  of  the  thirties  and  in 
the  early  forties.  Among  other  early  effects  of  this 
change  in  the  industry  was  the  passage  of  the  tariff 
bill  of  1842,  materially  raising  the  protective  duties 
on  iron,  which  resulted  in  the  erection  of  many  new 
charcoal  furnaces,  most  of  which  had  to  be  abandoned 
a  few  years  later. 

The  second  revolutionary  change  in  the  manufac- 
ture of  crude  iron  came  about  through  the  substitu- 
tion of  bituminous  coal  (in  the  form  of  coke)  for 


270  RAILWAY   RATES 

anthracite*  This  substitution  was  primarily  the 
result  of  the  greater  cheapness  and  effectiveness  of 
new  processes  of  smelting  by  means  of  coke,  but  it 
was  powerfully  furthered  by  the  movement  of  the 
centre  of  population  to  the  west  of  the  Appalachians, 
where  were  situated  the  great  deposits  of  coke-mak- 
ing bituminous  coal,  and  by  the  active  competition 
of  mine  owners  and  railways  in  opening  bituminous 
coal  lands  and  marketing  their  products.  "The  use 
of  soft  coal  which  had  begun  before  i860  became 
rapidly  greater.  Already  in  1872  it  was  important; 
and  from  year  to  year  it  grew.  In  the  periodic  oscil- 
lations between  activity  and  depression,  which  mark 
the  iron  trade  more  distinctively  than  any  other  in- 
dustry, anthracite  iron  shrank  sensitively  in  the  slack 
periods,  and  barely  regained  its  own  in  the  succeeding 
periods  of  expansion.  Bituminous  or  coke  iron,  on 
the  other  hand,  held  its  own  during  the  hard  times, 
and  advanced  by  leaps  and  bounds  with  each  revi- 
val of  activity.  In  1875,  for  the  first  time,  its  output 
exceeded  that  of  the  rival  eastern  fuel,  and  since  that 
date  the  huge  advance  in  the  iron  product  of  the 
United  States  has  been  dependent  on  the  use  of 
coke."t 

While  the  displacement  of  the  anthracite  iron  of 
eastern  Pennsylvania  by  the  bituminous  iron  of  west- 

*  This  discussion  of  the  later  changes  in  the  iron  industry  of  the  United 
States  is  based  upon  Professor  F.  W.  Taussig's  articles  in  the  Quarterly 
Journal  of  Economics  for  February  and  August,  1900. 

t  Taussig,  Art.  I,  p.  146. 


THE  WORKINGS   OF  COMPETITION  271 

ern  Pennsylvania  was  still  going  on,  two  new  iron 
centres  were  arising,  one  farther  West  and  one  in 
the  South.  As  a  result  of  the  development  of  the 
vast  steel-making  ore  deposits  of  the  Lake  Superior 
region  and  of  the  foundry  iron  deposits  of  the  South, 
the  iron  and  steel  industry  of  the  Pittsburg  district 
(though  it  benefited  most  of  all)  was  compelled  to 
share  with  rivals  the  growing  trade  of  the  country. 
From  1880  to  1898  the  pig-iron  production  of  Ohio, 
Indiana  and  Illinois  increased  from  730,000  tons  to 
3,352,000  tons;  that  of  Alabama,  Georgia,  Tennes- 
see, Virginia  and  Maryland  from  238,000  to  1,785,000 
tons;  that  of  western  Pennsylvania  from  772,000  tons 
to  4,435,000  tons.  During  these  same  years  the  out- 
put of  pig  iron  of  eastern  Pennsylvania,  New  York 
and  New  Jersey,  of  late  years  smelted  by  a  mixture 
of  anthracite  and  coke,  declined  from  1,610,000  tons 
to  1,431,000  tons.* 

The  next  important  change  in  the  American  iron 
industry  took  place,  as  regards  the  mining  side  alone, 
in  the  Lake  Superior  iron  region  itself.  As  late  as 
1890  what  is  now  known  as  the  Mesabi  iron  field 
was  "a  trackless  waste."  In  that  year  the  Mar- 
quette, Gogebic  and  Vermillion  fields  produced 
6,720,000  gross  tons  of  ore,  mostly  suitable  for  mak- 
ing Bessemer  steel.  The  first  of  these  fields  had  been 
exploited  on  a  considerable  scale  from  1873  onward, 
the  second  and  third  from  1884.    Besides  these  fields 

*  Taussig,  Art.  I,  p.  164. 


272  RAILWAY  RATES 

of  the  Lake  Superior  ii-on  region  proper,  there  is  the 
^Menominee  field,  farther  to  the  eastward  and  nearer 
the  lake  than  the  others,  but  producing  for  the  most 
part  ores  not  of  Bessemer  quality.  Its  output  in  1890 
was  2,282,000  tons.  In  1892  the  Mesabi  fields  were 
opened  by  a  railway  from  Duluth,  and  by  1895  ^^^7 
had  distanced  all  the  neighboring  rivals.  Mesabi 
ores  are  about  half  of  Bessemer  quality,  are  mined 
in  open  cuts  by  steam  shovels,  and  have  a  haul  of 
about  100  miles  to  the  lake.  During  the  depression 
following  the  crisis  of  1893,  the  output  of  the  Mar- 
quette and  Gogebic  fields  fell  ofif,  as  compared  with 
1890,  from  5,840,000  tons  to  4,646,000  tons  in  1895; 
while  that  of  the  Vermillion  range  rose  from  880,000 
tons  to  1,079,000  tons,  and  the  output  of  the  Mesabi 
range  mounted  from  600,000  tons  in  1893  to  about 
1,800,000  tons  in  1894  and  to  2,781,000  tons  in  1895.* 
It  is  one  of  the  surprises  of  American  industry  for 
foreigners  that  iron  ore  should  be  converted  into  pig 
iron  and  steel,  and  steel  should  be  fashioned  into 
rails,  bridges,  plates,  wire,  nails  and  structural  forms 
for  building  at  Chicago,  Joliet  and  IMilwaukee  — 
places  with  no  strictly  natural  local  advantages. 
But  these  places  have  easy  access  to  important 
western  markets;  and  the  railways,  supplement- 
ing the  lake  steamers,  are  as  ready  to  make  them  the 
meeting-places  for  Lake  Superior  ores  and  western 
Pennsylvania  coke  as  they  are,  on  the  other  hand,  to 

*  See  Taussig,  Art.  I,  p.  152. 


THE  WORKINGS   OF  COMPETITION  273 

haul  the  ores  from  the  Lake  Erie  ports  to  the  coke 
of  the  Pittsburg  district.  "Whether  the  ore  goes 
to  the  coal  or  the  coal  meets  the  ore  halfway,  one  or 
both  must  travel  a  long  journey  by  land  as  well  as 
by  water.  One  or  both  must  be  laden  and  unladen 
several  times.  A  carriage  of  800,  900  or  over  1000 
miles  must  be  achieved,  with  two  separate  hauls  by 
rail.  Fifty  years  ago,  even  twenty  years  ago,  it  would 
have  seemed  well-nigh  impossible  to  accomplish  this 
on  a  great  scale  and  with  great  cheapness.  The 
geographical  conditions  on  which  a  large  iron  in- 
dustry must  rest  were  supposed  by  Jevons,  in  1866, 
to  be  the  continuity  of  iron  and  coal.  But  here  are 
supplies  of  the  two  minerals  separated  by  a  thousand 
miles  of  land  and  water,  and  nevertheless  combined 
for  iron  making  on  the  largest  scale  known  in  the 
world's  history."* 

Contrast  the  elasticity  and  adaptability  of  the 
American  system  of  transportation,  which  permits 
such  stupendous  changes,  with  the  German  system. 
Recall  the  fact  that  since  1886  the  Prussian  Govern- 
ment has  refused  to  make  rates  that  would  allow 
the  iron  ores  of  Alsace-Lorraine  to  move  freely  to 
where  the  best  coking  coal  is  produced,  and  that  con- 
sequently, of  late  years,  the  iron  industries  of  the  Ruhr 
district  have  had  to  draw  more  and  more  upon  the 
deposits  of  Spain  and  Sweden  coming  by  water.  Nor 
are  the  railways  in  Germany  permitted  to  carry  coke 

*  Taussig,  Art.  I,  pp.  154-1 55* 


274  RAILWAY   RATES 

freely  to  the  ores.  The  man  who  should  propose  to 
let  the  Ruhr  coal  and  the  Swedish  ores  meet  at  Ham- 
burg, or  the  Swedish  ores  and  the  Silesian  coal  meet 
at  Danzig,  would  probably  be  looked  upon  as  a  most 
dangerous  innovator  —  a  public  enemy  bent  on  dis- 
sipating the  State  revenue  and  on  subverting  estab- 
lished industry. 

Let  us  ask  ourselves  again  what  would  have  hap- 
pened to  our  steel  and  iron  industry  and  to  our  politics, 
^i.  TT  ,  J  c-4  ,     had   the   Federal    Government    been 

The  United  States 

escapes  Germany  s  dragged  into  the  question  of  what  are 
Unhappy  Ex-  relatively  reasonable  rates  on  coke  from 
perience  Connellsville,  Pa.,  to  Joliet,  111.,  and  on 

iron  ores  from  the  Lake  Superior  region  to  Connells- 
ville. That  is  precisely  the  parallel  of  the  question 
that  for  twenty  years  has  hampered  the  development 
of  Germany's  steel  and  iron  industry. 

Speaking  of  the  rail  part  of  the  work  of  assembling 
iron-making  materials  in  the  United  States,  Professor 
Taussig  has  said:  ''\Miat  has  been  done  for  grain, 
for  cotton,  for  coal,  for  all  the  great  staples,  has  been 
done  here  also,  and  here  perhaps  more  effectively 
than  an)"«'here  else ;  the  plant  has  been  made  larger 
and  stronger,  the  paying  weight  increased  in  pro- 
portion to  the  dead-weight,  the  ton-mile  expense 
lessened  by  heavier  rails,  larger  engines,  longer  trains, 
and  easier  grades,  the  mechanism  for  loading,  un- 
loading, transshipping,  perfected  to  the  last  degree, 
or  to  what  seems  to  be  the  last  degree  until  yet 


THE  WORKINGS  OF  COMPETITION  275 

another  stage  toward  perfection  is  invented.  And 
evidently  here,  as  elsewhere,  the  process  has  been 
powerfully  prompted  by  unhampered  trade  over  a  vast 
territory,  and  the  consequent  certainty  that  costly 
apparatus  for  lengthened  transportation  will  never 
be  shorn  of  its  effectiveness  by  a  restriction  in  the 
distant  market  *  .  .  . 

"And  this  [the  improved  transportation]  has  been 
probably  the  one  single  cause  which  has  counted  for 
most  in  promoting  the  growth  of  the  iron  industry. 
Through  it  that  industry  in  the  United  States,  so  far 
from  having  to  deal  with  obdurate  and  limited  fuel, 
and  ores  of  no  special  excellence,  has  been  able  to 
bring  together  unlimited  supplies  of  both  materials 
on  easy  terms  and  in  perfect  quality.  How  much 
such  easy  command  of  proper  materials  tells  is  shown 
by  the  growth  of  the  iron  manufacture  in  Alabama 
and  the  adjoining  southern  region.  Here  the  close 
contiguity  of  coal  and  iron  has  caused  a  great  in- 
dustry to  develop  with  extraordinary  rapidity,  in  the 
face  of  difficult  social  conditions  and  of  the  compe- 
tition of  the  strong  and  comparatively  old  industry 
in  Pennsylvania.  The  cheapening  of  transportation 
has  given  Pennsylvania  herself  the  equivalent  of 
contiguous  ore  and  coal,  and  has  been  the  main 
factor  in  promoting  the  advance  of  her  iron  indus- 
try also."f 

A  further  aspect  of  the  whole  subject  is  freedom 

♦  See  Taussig,  Art.  I,  p.  157.  f  Art.  II,  p.  486. 


276  RAILWAY  RATES 

and  rivalry  in  marketing  the  iron  product.  After 
the  materials  are  assembled  and  converted  into 
crude  iron  and  steel,  the  leading  centres  of  the  in- 
dustry sell  into  all  parts  of  the  country,  for  the  whole 
country  (with  some  minor  reservations)  is  one  great 
common  market  for  them  all.  In  Germany,  on  the 
other  hand,  each  of  the  three  leading  iron-producing 
centres  has  practically  its  own  local  and  exclusive 
market.  The  reason  has  been  made  abundantly 
plain.  If  the  manufacturer  of  iron  and  steel  in 
Alsace-Lorraine  would  sell  into  northern  and  east- 
ern Germany,  he  must,  as  it  were,  send  his  product 
out  by  the  back  door  —  he  must  ship  it  by  way  of 
the  French  and  Belgian  canals  to  the  North  Sea  and 
thence  to  the  Baltic. 

That  similar  conditions  might  exist  in  the  United 
States  also,  were  it  not  for  the  Constitution  and  the 
American  Politics  courts,  is  perfectly  possible.  We  are 
not  unlike  not  to  take  our  free    trade    in   iron 

German  ^^^  ^^^^^  ^^^  ^j^^-^  Constituent  ma- 

terials for  granted,  even  in  the  absence  of  internal 
customs  barriers.  We  have  other  light  upon  the 
matter  besides  the  experience  of  Germany.  It  is 
notorious  that  our  external  customs  barrier  has  been 
manipulated  by  some  domestic  iron  interests  with  a 
view  to  hampering  others.  Such  conflict  of  interest 
has  been  strikingly  set  forth  by  Professor  Taus- 
sig:— 

"At  Sparrow's  Point,  near  Baltimore,  one  of  the 


THE  WORKINGS  OF   COMPETITION  277 

great  steel  companies  [the  Pennsylvania  Steel  Com- 
pany] has  erected  large  works,  where  iron  and  steel 
are  made  from  ore  brought  in  cheaply  by  sea  from 
mines  owned  by  the  company  in  Cuba.  Th6  coal 
comes  from  the  Appalachian  chain,  chiefly  from  the 
Pittsburg  region,  meeting  the  ore  halfway,  as  is  the 
case  with  the  Ohio  and  Illinois  works  in  the  Central 
region.  The  representatives  of  this  company  have 
pleaded  strongly  for  free  ore  before  Congressional 
committees,  and  of  course  have  met  the  opposition, 
hitherto  successful,  of  the  Lake  Superior  mine  own- 
ers. .  .  .  The  effect  of  this  part  of  the  iron  duties 
is  perfectly  simple.  The  Lake  Superior  ore  made 
its  way  farther  eastward  than  it  would  otherwise 
have  done.  The  Cuban  and  other  foreign  ore  was 
handicapped  by  just  the  amount  of  the  tariff  tax, 
and  the  iron-master  near  the  seaboard  had  to  pay  so 
much  more  for  this  part  of  his  material.  .  .  .  Had 
Cuba  been  a  part  of  the  United  States,  its  mines 
would  have  been  welcomed  as  enriching  the  natural 
resources  of  the  country ;  but,  being  outside  the  pale, 
the  persons  owning  the  Lake  Superior  mines  were 
able  to  bolster  their  opposition  to  this  particular 
competition  by  the  appeal  to  national  prejudice. 
Had  the  Mesabi  and  Vermillion  mines  on  Lake  Su- 
perior been  a  little  on  the  Canadian  side  of  the  border, 
instead  of  being  just  on  the  American  side,  a  very 
effective  fight  against  them  would  have  been  made 
on  the  same  ground  —  and  who  can  say  with  what 


278  RAILWAY  RATES 

outcome  ?  —  by  the  owners  of  the  other  mines  on 
the  lake." 

It  is  by  no  means  necessary  in  the  United  States  for 
a  source  of  supply  to  be  on  foreign  soil  and  subject  to 
the  play  of  "national  prejudice,"  in  order  to  have  the 
spirit  of  protectionism  invoked  against  it.  Manu- 
factures produced  in  the  East  and  marketed  in  Cali- 
fornia, Oregon  and  Washington  are  made  and  sold 
under  the  same  flag.  Nevertheless,  it  is  a  matter  of 
common  report  that  the  Pacific  coast  manufacturers 
desire  to  get  a  member  of  their  own  on  the  Interstate 
Commerce  Commission,  in  order,  if  possible,  to  regu- 
late the  westward  transcontinental  rates  to  their  pe- 
cuniary advantage.  Instances  of  this  sort  in  different 
parts  of  our  country  can  be  multiplied.  Some  of 
them  have  been  given,  and  others  will  appear  as  we 
proceed.  The  fact  is  that  in  every  large  country 
there  is  a  constant  tendency  toward  interprovincial 
protection,  which  is  effectually  counteracted  only  by 
the  absence  of  opportunity  for  realization.  If  it  were 
possible  under  our  Constitution  to  have  interstate 
revenue  imposts  on  commerce,  they  would  certainly 
have  been  made  protective,  as  well  as  revenue-raising, 
long  ago.  Interstate  charges  for  the  transportation 
of  goods  on  the  railways  we  must  have ;  but  to  keep 
them  non-protective  (in  the  obstructive  sense)  they 
must  be  kept  out  of  politics.  This  means  that  they 
must  be  kept  in  business,  under  private  control.  In 
the  conflicts  of  interest  which  are  a  necessary  incident 


THE  WORKINGS  OF  COMPETITION  279 

of  progress,  few  men  practise  a  broad  and  liberal 
patriotism,  when  interest  affords  the  incentive  and 
institutions  afford  the  opportunity  to  do  other- 
wise. 


CHAPTER  IV 

THE  ADJUSTMENT   OF    RAILWAY  RATES 

The  primary  grain  markets  are  those  railway  cen- 
tres into  which  the  grain  of  the  surplus  grain  States 
is  concentrated  in  the  first  stage  of  its  movement  after 
leaving  the  producer.  The  ten  most  important  ones 
are  Chicago,  I^Iinneapolis,  Duluth-Superior,  St.  Louis, 
Milwaukee,  Toledo,  Kansas  City,  Peoria,  Cincinnati 
and  Detroit.  They  are  located  on  the  circumference 
of  an  irregular  circle,  inside  of  which  are  thousands  of 
shipping-points  into  which  the  grain  is  gathered  from 
the  farms.  From  each  of  the  primary  markets  radi- 
ates a  fan-shaped  network  of  railway  lines.  From 
Chicago,  for  example,  21  lines  reach  southward,  west- 
ward and  northward,  over  territory  in  which  other 
roads  compete  radiating  from  other  primary  markets. 
Twenty-seven  systems  radiate  from  Kansas  City,  ten 
from  Minneapolis,  twenty-five  from  St.  Louis  and 
equally  large  numbers  from  the  other  primary 
markets.  The  situation  is  such  that  the  intensity  of 
competition  among  the  grain  carriers  increases  with 
the  distance  from  the  circumference  of  the  circle  of 

primary  markets  toward  the  centre  of  the  surplus 

280 


THE   ADJUSTMENT   OF   RAILWAY   RATES        281 

wheat-producing  area.  There  is  no  considerable  ter- 
ritory that  has  not  the  choice  of  two  or  more  primary 
markets.  In  other  words,  while  the  grain  of  a  par- 
ticular area  will  usually  go  to  a  particular  market,  it 
will  immediately  flow  elsewhere,  if  the  price  of  that 
market  becomes  the  least  bit  too  low  as  compared 
with  other  markets.  A  given  area  may  be  tributary 
to  Chicago  to-day,  to  St.  Louis  to-morrow  and  to 
Kansas  City  the  day  after.  This  result  inevitably 
follows  from  the  fact  that  the  various  primary 
markets  are  simply  strategic  points,  through  which 
the  distributing  or  marketing  centres  on  the  Atlantic 
coast,  the  Gulf,  the  Great  Lakes  and  the  St.  Law- 
rence compete  with  one  another  for  the  partition  of 
the  traffic* 

This  competition  between  the  primary  markets  and 
their  several  railways,  on  the  one  hand,  and  between 
the  rival  export  harbors  and  their  several  railways,  on 
the  other  hand,  necessitates  a  complicated  division 
of  the  traffic.  In  the  first  place,  the  total  grain  traffic 
must  be  apportioned  among  the  primary  markets.  In 
the  next  place,  the  traffic  assigned  to  any  market,  say 
Chicago,  must  be  divided  among  the  lines  serving 
that  market  —  in  the  case  of  Chicago,  21  in  number. 
Finally,  the  grain  collected  at  the  primary  markets 
must  be  apportioned  among  the  rival  ports  on  the 

*  Report  of  the  Industrial  Commissio7t  on  the  Distribution  of  Farm 
Products.  Compare  especially  the  map  prepared  by  the  Grain  Department 
of  Armour  and  Co.  for  the  purpose  of  illustrating  the  territorial  competition 
among  the  primary  markets. 


282  RAILWAY  RATES 

Atlantic  from  Montreal  to  Galveston,  and  the  traffic 
assigned  to  each  port  must  be  once  more  divided 
among  the  dififerent  lines  leading  to  each  port. 

These  divisions  of  the  traffic  among  the  rival  mar- 
ket centres  and  among  the  rail\Yays  serving  each 
centre  are  made  upon  the  basis  of  the  relative  ability 
of  the  different  centres  and  the  different  railways  to 
get  traffic  under  the  operation  of  unrestricted  compe- 
tition. It  has  been  not  the  least  of  the  many  surprises 
of  our  railway  history  that  our  railway  managers  have 
been  able  to  gauge  the  relative  strength  of  rival  mar- 
kets and  of  rival  railways  with  almost  mathematical 
precision.  Rarely,  indeed,  has  the  distribution  of  the 
traffic,  during  even  the  fiercest  and  most  prolonged 
rate  war,  differed  materially  from  the  distribution 
during  the  period  of  comparative  quiet  preceding  the 
war.  But  that  does  not  mean  that  the  questions  can 
always  be  settled  without  recourse  to  a  rate  war. 
The  conflicts  of  interest  involved  between  the  several 
railways  and  —  be  it  not  forgotten  —  the  several  cities 
are  so  fierce  that  oftentimes  nothing  but  an  exhausting 
contest  can  settle  them. 

\\Tien  the  railroads  competing  for  a  given  traffic 
have  agreed  upon  the  division  of  that  traffic,  either 
with  or  without  a  rate  war,  they  adjust  the  railway 
rates  with  a  view  to  making  the  traffic  go  to  the  various 
points  and  by  way  of  the  several  railways,  in  accord- 
ance with  the  agreed  division  of  traffic.  If  it  should 
be  found  that  some  of  the  rates  have  been  malad- 


THE   ADJUSTMENT   OF   RAILWAY   RATES        283 

justed,  they  are  corrected  without  delay.  The  course 
of  the  traffic  is  watched  from  day  to  day,  and  read- 
justments of  rates  are  continually  made  to  allow  for 
disturbing  factors,  such  as  the  building  of  a  new  line 
or  the  improvement  of  an  old  one.  Oftentimes  it 
proves  impossible  to  make  the  readjustment  amicably, 
and  in  that  case  the  point  at  issue  is  once  more  settled 
by  means  of  a  rate  war. 

The  relative  rates  prevailing  on  the  different  rail- 
ways and  to  the  different  market  centres  are,  however, 
not  the  sole  factors  in  determining  the  course  of  traffic. 
The  energy  and  success  of  the  merchants  at  the 
several  markets  in  bidding  for  the  competitive  traffic 
also  are  important  factors.  For  example,  should  the 
grain  dealers  at  Chicago  and  Minneapolis  combine 
to  restrict  their  competition  for  the  grain  of  the  ter- 
ritory normally  tributary  to  Chicago  and  Minneapolis, 
the  price  of  grain  in  the  territory  in  question  would 
soon  come  to  be  a  fraction  of  a  cent  out  of  line 
with  the  price  in  the  territory  tributary  to  the  other 
primary  markets.  Very  shortly  bidders  would  appear 
from  St.  Louis  and  Kansas  City  in  the  Southwest  and 
Duluth  in  the  Northwest,  and  the  anomaly  in  price 
would  be  corrected.  The  grain  dealer  of  to-day 
figures  in  eighths,  sixteenths  and  thirty-seconds  of  a 
cent  a  bushel. 

The  story  of  the  collection  of  the  surplus  grain  at 
the  primary  markets  and  of  the  subsequent  distribu- 
tion to  the  consumer  upon  the  Atlantic  seaboard,  the 


284  RAILWAY   RATES 

consumer  at  the  South  and  the  consumer  in  Europe 
Nice  Ad'tistttunt  ^^  Summed  up  in  one  word — compe- 
of  Atnerican  tition.  That  Competition  between  rival 
Farm  Prices  to      wheat-growing  regions,  rival  railways 

Liverpool  Prices  ,      .      -,  ,,.  jj*i.-v.' 

and  rival  marketmg  and  distributrng 
centres  adjusts  the  price  of  wheat  upon  the  farms  of 
the  United  States  to  the  price  of  wheat  in  the  world's 
markets  with  a  nicety  not  even  distantly  approached 
in  other  countries.  The  restriction  upon  competi- 
tion between  markets  which  is  the  inevitable  re- 
sult of  Government  regulation  of  railway  rates  —  in 
Germany  and  Russia,  for  example  —  causes  the 
phenomenon  of  local  prices  for  wheat  and  other  agri- 
cultural produce.  In  such  cases  prices  over  large 
areas,  and  for  comparatively  long  periods  of  time, 
will  be  out  of  line  with  the  world's  price,  simply 
because  of  the  inelasticity  of  railway  rates. 

Upon  turning  from  the  marketing  of  wheat  to  the 
marketing  of  poultry,  eggs  and  dairy  products,  one 
finds  that  Pittsburg,  Cincinnati,  St.  Louis,  Kansas 
City,  Chicago  and  the  Atlantic  seaboard  cities  are 
competing  markets  for  the  poultry,  eggs  and  dairy 
products  of  the  Ohio  and  the  Mississippi  valleys. 
The  railway  rates  from  this  common  territory  to  these 
rival  markets  all  have  to  be  adjusted,  one  to  the  other. 
Furthermore,  the  wholesale  prices  in  these  markets 
all  have  to  be  adjusted  to  one  another.  For,  although 
certain  areas  within  the  region  in  question  are  nor- 


THE   ADJUSTMENT   OF   RAILWAY   RATES        285 

mally  tributary  to  certain  markets  rather  than  to 
others,  each  market  is  a  potential  bidder,  if  not  an 
actual  bidder,  throughout  the  whole  region  in  ques- 
tion. Any  lagging  in  the  adjustment  of  prices  in  one 
region  is  immediately  corrected  by  more  active  bid- 
ding from  the  other  markets  * 

The  sources  of  the  live-stock  supply  of  the  United 
States  are  Texas,  Arkansas,  Oklahoma,  the  Indian 
Competition  of  Territory,  Arizona  and  New  Mexico 
Markets  in  the  in  the  Southwcst,  and  Montana, 
Cattle  Business  Wyoming,  the  Dakotas  and  Colo- 
rado in  the  Northwest.  The  range  cattle  from 
these  two  regions  are  fattened  and  prepared  for  mar- 
ket by  corn-feeding  in  the  great  corn  belt,  consisting 
of  the  States  of  Missouri,  Kansas,  Nebraska,  Iowa 
and  Illinois.  They  are  brought  from  the  range  to 
the  farm  in  the  corn-belt  by  way  of  the  cattle  markets 
at  Kansas  City,  St.  Louis,  St.  Joseph  and  Omaha. 
The  first  two  markets  are  nearest  to  the  southwestern 
ranges,  the  last  two  are  nearest  to  the  northwestern 
supply  of  range  cattle.  Each  market  also  has  spe- 
cial advantages  in  reaching  some  section  or  sections 
of  the  corn  belt  where  corn  is  fed  upon  the  farms  to 
the  range  cattle.  But  each  one  of  these  markets  has 
access  to  each  of  the  ranges,  as  well  as  to  the  whole 
corn  belt,  and  there  is  the  keenest  competition  be- 
tween them  for  the  business  of  buying  range  cattle 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products. 


286  RAILWAY   RATES 

and  sending  them  to  the  farm  to  be  prepared  for  the 
block.  The  distribution  of  this  business  between 
these  competing  markets  depends  upon  the  respec- 
tive equipments  of  these  markets  with  railways  lead- 
ing to  the  ranges  and  to  the  corn  belt  respectively, 
upon  the  freight  charges  prevailing  upon  the  railways 
in  question  and  upon  the  prices  to  be  obtained  for 
range  cattle  in  each  of  the  markets. 

This  competition  for  the  marketing  of  the  range 
cattle  is  growing  keener  as  the  development  of  the 
country  proceeds.  For  instance,  the  use  of  certain 
by-products  of  the  cotton-seed  oil  industry  as  cattle 
fodder  is  establishing  the  range  cattle-feeding  indus- 
try and  the  packing  industry  in  Texas,  and  thus  is 
adding  one  more  to  the  number  of  markets  compet- 
ing for  the  range  cattle.  Again,  the  planting  of  Kaf- 
fir and  milomaize  in  northwestern  Oklahoma,  the 
Panhandle  of  Texas  and  the  Staked  Plain  is  making 
the  latter  region  into  a  competitor  of  the  corn  belt 
in  the  preparation  of  range  cattle  for  the  block.  Still 
again,  the  growth  of  population  on  the  Pacific  coast 
and  the  export  trade  to  the  Orient  promises  to  make 
the  Pacific  coast  a  formidable  competitor  for  the 
cattle  of  the  northwestern  ranges. 

For  the  cattle  that  have  been  fattened  for  the  block 
the  great  slaughtering  establishments  at  Chicago, 
St.  Louis,  Kansas  City,  St.  Joseph  and  Omaha  are 
competitors.  In  former  years  the  slaughtering  es- 
tablishments on  the  Atlantic  seaboard  also  were  for- 


THE  ADJUSTMENT  OF  RAILWAY  RATES       287 

midable  competitors.  But  competition  has  become 
so  keen  in  the  business  of  packing  beef  that  it  has 
become  comparatively  unprofitable  to  ship  cattle  on 
the  hoof.  Each  year  the  number  of  live  cattle  sent 
to  the  seaboard  for  domestic  consumption  grows 
smaller,  while  the  shipments  of  dressed  beef  from  the 
West  grow  larger.  Even  Chicago  feels  the  change 
and  is  losing  its  ascendency  in  the  packing  business, 
just  as  it  has  already  lost  its  ascendency  in  the  busi- 
ness of  shipping  to  market  the  wheat  and  flour  raised 
in  the  interior  of  the  United  States.* 

Upon  turning  from  the  farming  and  the  live-stock 
industries  to  the  lumber  industry,  one  finds  the  same 
competition  for  the  market,  with  the  resulting  need  of 
the  adjustment  of  railway  rates  between  many  con- 
flicting interests.  In  the  markets  of  New  England 
and  the  northern  Atlantic  seaboard  compete  the 
spruce  and  the  hemlock  of  Maine,  the  white  pine  of 
Minnesota  and  the  yellow  pine  of  the  tier  of  States 
ranging  from  Texas,  Arkansas  and  the  Indian  Terri- 
tory in  the  Southwest  to  Georgia  in  the  Southeast.  In 
the  markets  of  Ohio,  Indiana  and  Illinois  the  hard- 
woods of  the  Middle  West  compete  with  the  hard- 
woods of  Kentucky,  Tennessee  and  Alabama.  The 
treeless  States  of  the  Middle  West  are  the  meeting- 

*  The  Summary  of  Commerce  and  Finance,  January,  1901;  Report 
of  the  Industrial  Commission  on  the  Distribution  of  Farm  Products ; 
and  Mr.  John  F.  Crowell  in  Papers  and  Proceedings  of  the  Fourteenth 
Annual  Meeting  of  the  American  Economic  Association. 


288  RAILWAY   RATES 

place  for  the  yellow  pine  of  the  South,  the  white  pine 
of  Minnesota,  Michigan  and  Wisconsin,  and  the 
spruce,  fir  and  pine  of  Oregon  and  Washington* 

Where  the  farmer  sells  his  produce,  there  he  buys 
his  supplies.  The  rival  primary  markets  are  at  the 
same  time  rival  jobbing  and  trading  centres.  To 
fall  behind  as  a  primary  market  means  also  to  fall 
behind  as  a  distributing  centre ;  to  gain  as  a  distribut- 
ing centre  means  also  to  gain  as  a  primary  market. 
Therefore  it  is  necessary  to  divide  among  the  rival 
railways  and  the  rival  markets  not  only  the  east-bound 
traffic  in  agricultural  products,  but  also  the  west- 
bound traffic  in  merchandise  and  manufactures. 
This  west-bound  traffic  may  originate  anywhere  be- 
tween T^'Iontreal  in  the  North  and  Galveston  in  the 
South,  and  an)^'here  between  the  Atlantic  seaboard 
in  the  East  and  the  Missouri  River  in  the  West ;  and 
it  may  be  sent  to  its  final  destination  by  way  of  any 
of  the  trading  centres  between  Chicago  and  Duluth 
in  the  North  and  Galveston  and  New  Orleans  in  the 
South.  A  change  in  the  rates  from  the  North  Atlan- 
tic seaboard  to  Galveston,  for  example,  would  dis- 
turb the  established  course  of  trade  with  the  entire 
area  bounded  on  the  east  by  a  line  running  along 
the  Mississippi  River  from  New  Orleans  to  Jefferson, 
Mo.,  and  thence  to  Omaha,  Sioux  City,  Dead  wood  and 
Cheyenne,  and  bounded  on  the  west  by  the  Sierras. 

*  The  Summary  of  Commerce  and  Finance,  November,  1900,  and 
January,  1901, 


THE   ADJUSTMENT   OF   RAILWAY   RATES        289 

For  the  purpose  of  regulating  the  east-bound  traffic 
in  agricultural  products  and  the  west-bound  traffic  in 
Traffic  Associa-  merchandise  and  manufactures,  the 
tions  regulate  territory  of  the  United  States  has 
Competition  ^^^^^    divided    into    four   parts,    and 

the  railways  of  each  of  those  parts  have  been  brought 
together  in  traffic  associations.  The  latter  appor- 
tion the  competitive  traffic  among  the  several  com- 
peting railways  and  trading  centres.  In  order  to 
effect  that  apportionment,  it  often  becomes  necessary 
to  organize  subsidiary  traffic  associations,  which  take 
charge  of  the  railways  of  specific  minor  areas  or  of 
specific  kinds  of  traffic.  Again,  the  railways  of  the 
several  parts  of  the  United  States  often  negotiate  with 
each  other  for  the  purpose  of  agreeing  upon  the  division 
of  long-distance  traffic  carried  over  several  of  the  main 
territorial  divisions.  The  best-known  example  of  such 
negotiation  is  the  Transcontinental  Traffic  Association, 
which  determines  the  distribution  of  the  traffic  be- 
tween the  Pacific  coast  and  the  territory  lying  between 
the  Mississippi  River  and  the  Atlantic  seaboard. 

The  first  of  the  four  divisions  into  which  the  United 
States  has  been  divided  comprises  the  territory  east 
of  the  Mississippi  River  and  north  of  the  Ohio  and 
Potomac  rivers.  The  second  comprises  the  terri- 
tory east  of  the  Mississippi  and  south  of  the  Ohio  and 
Potomac.  The  third  division  lies  between  the  Mis- 
sissippi River  and  the  Rocky  Mountains.  The  fourth 
comprises  the  Pacific  coast  region. 


290  RAILWAY   RATES 

In  the  territory  east  of  the  Mississippi  River  and 
north  of  the  Ohio  and  Potomac  rivers,  the  east  and 
west  bound  rates  are  adjusted  in  the  first  instance  on 
the  basis  of  relative  distances,  the  distance  between 
New  York  and  Chicago  being  taken  as  the  basis  of 
comparison.  Thus,  the  rates  to  and  from  St.  Louis 
are  114  per  cent  of  the  Chicago  rates,  and  those  to 
and  from  Cincinnati  are  87  per  cent.  To  this  gen- 
eral rule  there  are,  however,  many  exceptions,  which 
represent  now  a  compromise  between  rival  railways 
or  rival  distributing  centres,  now  a  compromise  be- 
tween the  railways  and  the  waterways.  Baltimore 
and  Philadelphia,  as  has  already  been  stated,  are 
allowed  differentials  on  east-bound  as  well  as  west- 
bound traffic.  Again,  roundabout  or  circuitous  lines, 
as  well  as  lines  whose  equipment  is  not  of  the  high- 
est standard,  are  allowed  differentials.  These  dif- 
ferentials vary  from  5  cents  per  100  pounds  on  first- 
class  traffic  and  i  cent  on  sixth-class  traffic  in  the  case 
of  the  New  York,  Lake  Erie  and  Western,  the 
Lehigh  Valley,  the  West  Shore  and  the  Delaware, 
Lackawanna  and  Western  railroads,  to  10  cents  and 
3  cents  respectively  on  the  Chesapeake  and  Ohio, 
and  15  cents  and  4  cents  respectively  on  the  Central 
Vermont  Railroad.  These  differentials,  like  all  the 
other  departures  from  rates  based  on  relative  dis- 
tances, are  the  result  of  compromises  effected  after 
years  of  contest,  and  they  represent  the  condition 
upon  which  is  maintained  the  state  of  armed  peace 


THE   ADJUSTMENT   OF   RAILWAY   RATES        291 

which  is  the  characteristic  feature  of  the  railway  situa- 
tion in  all  parts  of  the  United  States. 

The  adjustment  of  rates  in  the  territory  south  of 
the  Ohio  and  the  Potomac  rivers  and  east  of  the  Mis- 
The  Basing-poini  sissippi  River  is  effected  by  the  South- 
Systematthe  ern  Classification  Committee,  acting 
^°^^^^  with   the    Southeastern    and    Missis- 

sippi Valley  Association,  the  Southeastern  Freight 
Association  and  the  Associated  Railways  of  the 
Virginias  and  the  Carolinas.  In  this  territory  the 
competition  between  the  railways,  between  the  rail- 
ways and  the  coast  vessels  and  between  the  railways 
and  the  river  steamers  is  such  that  the  average  re- 
ceipts per  ton  per  mile  on  the  freight  traffic  are  as  low 
relatively  as  they  are  anywhere  in  the  United  States, 
and  lower  relatively  than  they  are  in  most  parts  of 
the  country.  At  the  same  time,  the  volume  of  traffic 
is  comparatively  slight  and  has  to  be  handled  under 
comparatively  costly  conditions,  the  average  train- 
load  as  well  as  the  average  length  of  haul  being  com- 
paratively small.  These  various  factors  have  made 
the  earning  power  of  railway  property  in  the  territory 
south  of  the  Ohio  and  Potomac  comparatively  slight, 
and  thus  they  have  prevented  the  railways  from  low- 
ering the  rates  on  local  traffic  to  a  closer  approach  to 
the  level  of  the  rates  on  through — that  is,  competitive 
—  traffic  as  rapidly  as  the  railways  north  of  the  Ohio 
and  the  Potomac  have  lowered  their  local  rates.  The 
comparatively  small  earning  power  of  the  railways  of 


292  RAILWAY  RATES 

the  South  has  also  made  the  latter  adhere  more 
tenaciously  to  the  so-called  "  basing-point "  system, 
because  of  the  economy  in  the  conducting  of  trans- 
portation to  be  obtained  from  the  use  of  this  system* 

The  railways  of  the  South,  like  those  of  the  rest  of 
the  United  States,  began  with  a  system  of  something 
like  equal  mileage  rates.  But  the  necessity  of  meet- 
ing water  competition  at  certain  points  and  the  compe- 
tition between  the  railways  themselves  at  other  points 
soon  led  to  wide  departures  from  the  scheme  of  equal 
mileage  rates.  So-called  competitive  rates  were  made 
to  so-called  competitive  points,  or  basing  points;  and 
the  rates  to  non-competitive  local  points  were 
found  by  adding  to  the  through  rate  to  the  near- 
est competitive  point  the  local  rate  from  that  competi- 
tive point.  For  example,  the  rate  to  a  local  point 
loo  miles  north  of  Atlanta,  Ga.,  consists  of  the 
through  rate  from  New  York  to  Atlanta,  plus  the 
local  rate  from  Atlanta  back  to  the  local  point.  The 
local  point  is  nearer  New  York  than  is  Atlanta,  but 
the  rate  to  it  is  higher  than  the  rate  to  Atlanta.  In 
other  words,  the  rate  on  the  longer  haul  is  lower  than 
the  rate  over  the  shorter  haul. 

This  practice  of  making  competitive  rates  to  com- 
petitive points,  or  basing  points,  had  two  important 
effects:    it  decentralized  trade,  and  it  enabled  the 


*  Upon  the  subject  of  the  earning  power  of  railway  property  in  differ- 
ent parts  of  the  United  States,  compare  H.  C.  Adams,  in  American  Statis- 
tical Association  Publications,  No.  3,  1892-93. 


THE   ADJUSTMENT   OF   RAILWAY   RATES        293 

railways   to   effect   great   economies   in   conducting 
transportation. 

Under  a  system  of  tapering  rates,  the  sum  of  the 
through  rate  from  New  York  to  Atlanta,  plus  the 
local  rate  from  Atlanta  to  some  local  point  loo  miles 
to  the  north  and  nearer  to  New  York,  will  exceed  the 
through  rate  to  that  local  point  from  New  York. 
Similarly,  the  sum  of  the  through  rate  from  New 
York  to  Atlanta,  plus  the  local  rate  thence  to  some 
point  ICO  miles  farther  south,  will  exceed  the  through 
rate  to  the  point  in  question  from  New  York.  Under 
such  a  system  of  charges  it  would  be  impossible  for 
wholesale  merchants  to  establish  themselves  in  At- 
lanta, for  the  purpose  of  selling  to  local  points  to  the 
north  and  south  in  competition  with  New  York  mer- 
chants. But  as  soon  as  Atlanta  is  made  a  competi- 
tive point,  or  basing  point,  the  Atlanta  wholesale 
merchant  is  put  on  a  footing  of  equality  with  the  New 
York  wholesale  merchant  in  the  territory  to  the  north 
and  south  of  Atlanta.  In  other  words,  the  basing- 
point  system  decentralizes  trade.  It  is  commonly 
said  that  the  basing-point  system  concentrates  trade, 
in  that  it  concentrates  in  Atlanta  trade  that  would, 
under  a  different  scheme  of  rates,  go  to  the  present 
local  points.  This  view  overlooks  the  fact  that  the 
trade  thus  concentrated  in  Atlanta  is  taken  from  New 
York,  and  not  from  the  so-called  local  points.  In 
the  absence  of  the  basing-point  system,  all  points  in 
the  South  would  be  local  points,  with  local  trade  only. 


294  RAILWAY  RATES 

The  belief  that  the  basing-point  system  concen- 
trates trade  is  based  on  the  erroneous  assumption 
that,  in  the  absence  of  that  system,  all  points,  or 
at  least  very  many  points,  would  be  distributing 
points. 

In  the  Australian  colonies,  the  railways,  which  are 
owned  and  operated  by  the  several  States,  have  re- 
fused to  introduce  the  basing-point  system,  with  the 
result  that  there  are,  generally  speaking,  no  interior 
distributing  trade  centres  and  that  all  trade  is  con- 
centrated in  the  seaboard  cities,  such  as  Melbourne, 
Sydney  and  Adelaide.  As  the  railways  have  been 
pushed  inland,  the  enterprising  merchants  of  the  local 
towns  have  sold  out  and  moved  to  the  seaboard,  for 
the  purpose  of  availing  themselves  of  the  advantage 
accruing  to  the  seaboard  merchants  from  the  absence 
of  the  basing-point  system.  For  example,  when  the 
railways  of  Victoria  ended  at  Ballarat,  that  city  had 
an  extensive  jobbing  trade  to  points  in  the  interior 
reached  by  wagon  road.  But  when  the  railways 
were  pushed  on  to  those  points,  the  trade  in  ques- 
tion went  to  Melbourne.  Under  the  tapering  system 
the  sum  of  the  through  rate  from  ^lelbourne  to  Bal- 
larat and  the  local  rate  from  Ballarat  to  some  interior 
point  exceeded  the  through  rate  from  Melbourne  to 
the  interior  point  in  question.  The  enterprising 
among  the  merchants  of  Ballarat  moved  to  Mel- 
bourne and  became,  to  use  their  own  phrase,  "metro- 
politan  merchants."     This   concentrating   effect   of 


THE   ADJUSTMENT   OF   RAILWAY   RATES       295 

the  absence  of  basing  points  is  freely  admitted  in  the 
Australian  colonies;  and  in  some  of  the  important 
debates  upon  railway  rates,  held  in  recent  years  in 
the  Parliament  of  New  South  Wales,  many  prominent 
Sydney  merchants  and  manufacturers  admitted  that 
the  absence  of  basing  points  concentrated  trade  in 
Sydney.  They  added  that  they  personally  had  no 
complaint  to  make,  for  the  system  of  tapering  railway 
rates  had  transformed  them  (the  merchants)  from 
country  storekeepers  into  metropolitan  merchants. 
But  the  greatest  statesman  in  Australia,  Mr.  G.  H. 
Reid,  has  repeatedly  called  the  resulting  concentra- 
tion of  the  population  in  the  seaboard  cities  "the 
curse  of  Australia."  In  1901  there  were  living  in 
Sydney  36  per  cent  of  the  people  of  New  South  Wales ; 
in  Melbourne,  41  per  cent  of  the  people  of  Victoria ; 
and  in  Adelaide,  45  per  cent  of  the  population  of 
South  Australia. 

There  is,  however,  no  need  of  going  so  far  from  home 

as  Australia  for  the  purpose  of  finding  support  for 

the  contention  that  the  basing-point 

The  Interstate  ^  ,.  ,  -r     • 

Commerce  Coin-  System  decentralizes  trade.  It  is  no- 
7nission  versus  torious  that,  SO  far  as  the  construc- 
the  Interior  Job-     ^^^^    ^^  ^        ^j^^  so-callcd  long  and 

mug  Points  111  r    1        * 

short  haul  clause  of  the  Act  to  Regu- 
late Commerce  by  the  Interstate  Commerce  Com- 
mission has  been  observed  by  the  railways,  it 
has  worked  against  the  interior  distributing  cen- 
tres, in  favor  of  Chicago  and  the  Atlantic  seaboard 


296  RAILWAY  RATES 

cities*  In  fact,  the  most  effective  reduction  in 
railway  rates  made  by  any  State  legislature  down 
to  1888  was  prompted  largely  by  the  desire  to  pro- 
tect the  jobbing  centres  of  a  certain  Middle  Western 
State  against  the  loss  of  trade  to  Chicago  resulting 
from  the  partial  enforcement  of  the  long  and  short 
haul  clause  of  the  Act  to  Regulate  Commerce.  It 
was  largely  for  the  purpose  of  protecting  the  jobbing 
interests  of  Dubuque,  Davenport  and  other  Iowa 
towns  that  the  Iowa  legislature  in  1888  enacted  a  law 
under  which  the  State  Railroad  Commissioners  in 
effect  reduced  by  from  20  to  30  per  cent  the  rates  on 
traffic  originating  in  Iowa  and  destined  to  points 
within  the  State. f  It  is  well  known,  also,  that  the 
merchants  of  New  York  and  Chicago  would  like  to 
see  the  Interstate  Commerce  Commission  of  the 
United  States  succeed  in  its  efforts  to  overthrow  the 
basing-point  system  of  the  South,  for  they  believe  that 
the  present  wholesale  trade  of  Atlanta  and  the  other 
southern  basing  points  would  then  go  in  large  part  to 
New  York  and  Chicago. 

*  Compare :  Reports  and  Decisions  of  the  Interstate  Commerce  Com- 
mission of  the  United  States,  Vol,  I,  p.  629 ;  The  La  Crosse  Manufac- 
turer^ ajtd  Jobber^  Union  v.  The  Chicago,  Milwaukee  and  St.  Paul 
Railway  Co.,  et  al..  Vol.  II,  p.  289  ;  N.  IV.  Howell,  etc.,  v.  The  New  York, 
Lake  Erie  and  Western  R.  R.  Co.,  et  al..  Vol.  II,  315;  The  Detroit  Board 
of  Trade,  etc.,  v.  The  Grand  Trunk  Railway  of  Canada,  Vol.  II,  p.  25  ; 
E.  Martin,  et  al.,  v.  The  Chicago,  Burlington  ami  Quincy  Railroad  Co., 
et  al.;  and  The  Railroad  Gazette,  April  22,  1887,  August  17,  1888,  and 
May  2,  1890. 

t  Mr.  E.  P.  Ripley,  Third  Vice-President  of  the  Chicago,  Milwaukee 
and  St.  Paul,  at  a  hearing  of  the  Iowa  State  Railroad  Commission, 
August  21,  1894  ;  quoted  in  F.  H.  Dixon's  State  Railroad  Control.  Com- 
pare also:  The  Evening  Post  (New  York),  October  23,  1897,  and  The 
Railroad  Gazette,  February  15,  1889. 


THE   ADJUSTMENT   OF   RAILWAY   RATES        297 

Finally,  the  Interstate  Commerce  Commission  it- 
self has  been  obliged  to  admit  that  the  basing-point 
system  decentralizes  trade  and  industry,  though  it 
has  not  permitted  that  admission  to  modify  its  policy 
of  hostility  to  that  method  of  rate-making.  In  Holdz- 
kom  V.  Michigan  Central  Railroad  Co.,  et  al.  (I.  C.  R. 
9),  the  Commission  found  that  the  making  of  Los 
Angeles  into  a  basing  point  had  transferred  to  that 
city  a  part  of  the  wholesale  trade  of  San  Francisco, 
and  that  it  had  not  made  Los  Angeles  grow  at  the 
expense  of  San  Bernardino,  a  local  point.  It  added : 
"In  many  instances  San  Francisco  houses  have  es- 
tablished branches  at  Los  Angeles.  It  is  probable 
that  this  arrangement  results  in  somewhat  cheaper 
prices  for  southern  California  than  would  be  secured 
by  a  distribution  from  San  Francisco,  since  the  cost 
(to  the  consumer)  at  the  two  centres  of  distribution 
is  now  the  same,  while  the  expense  of  distributing 
from  Los  Angeles  is  somewhat  less.  While,  there- 
fore, Los  Angeles  has  been  benefited,  it  would  ap- 
pear that  this  whole  section  shares  to  an  extent  in 
such  benefit;  nor  is  it  easy  to  perceive  how  San  Ber- 
nardino has  been  materially  injured,  since  that  city 
could  not  become  a  jobbing  centre  as  against  San 
Francisco  under  original  conditions"  —  that  is,  under 
the  conditions  that  had  obtained  before  Los  Angeles 
had  been  made  a  basing  point. 

The  second  noteworthy  effect  of  the  practice  of 
making   low    through   rates   to   competitive    points 


298  RAILWAY  RATES 

was  a  great  economy  in  the  cost  of  conducting 
transportation.  Freight  that  moves  in  a  large  and 
The  Economy  of  regularly  flowing  stream  is  handled 
the  Basing-point  much  more  cheaply  than  freight  which 
System  flows  in  Small  and  intermittent  quanti- 

ties. In  the  absence  of  basing  points,  freight  has  to 
be  carried  over  long  .distances  from  the  sources  of 
supply  in  comparatively  small  and  irregularly  flow- 
ing quantities.  The  establishment  of  basing  points 
makes  possible  a  preliminary  concentration  of  these 
small  and  irregular  rills  of  traffic  into  a  comparatively 
large  and  regularly  flowing  stream,  which  can  be 
handled  at  comparatively  low  cost.  It  limits  the 
comparatively  costly  traffic  of  small  volume  and  inter- 
mittent flow  to  the  relatively  short-distance  hauls  from 
the  basing  points  to  the  point  of  consumption.  Even 
in  the  absence  of  water  competition  and  railway 
competition,  it  would  therefore  be  to  the  interest 
of  the  railways  to  establish  throughout  the  land  such 
points  for  the  preliminary  concentration  of  the  traffic 
which  comes  from  distant  sources  of  supply  and  is 
ultimately  to  be  distributed  among  a  scattered  popu- 
lation. That  concentration  also  serves  the  interest 
of  the  public  at  large,  for  it  increases  the  margin  of 
profit  of  the  railways  and  thus  encourages  railroad 
building.  Had  the  railways  of  the  United  States 
not  been  able  to  avail  themselves  of  the  savings  to 
be  attained  by  distributing  freight  to  the  country 
consumer  through  the  agency  of  basing-points,  or 


THE   ADJUSTMENT   OF   RAILWAY   RATES        299 

competitive  points,  railway  building  would  have 
progressed  more  slowly,  and  the  country  population 
would  have  had  fewer  and  poorer  facilities  for  mar- 
keting its  produce. 

Here  again  a  glance  at  Australia  will  help  us.  The 
absence  of  interior  jobbing  centres  in  that  country 
is  responsible  in  part  for  the  ridiculously  low  average 
of  the  train-load,  which  was,  in  1902,  in  New  South 
Wales  66  tons  and  in  South  Australia  69  tons.  Such 
small  train-loads  mean  high  operating  expenses,  high 
freight  rates,  big  deficits  in  the  State  railways  and 
a  slow  extension  of  the  railway  net. 

It  is  the  economy  of  the  basing-point  system,  in 
conjunction  with  the  unusually  narrow  margin  of 
profit  upon  which  the  railways  south  of  the  Ohio  and 
Potomac  rivers  are  operated,  that  has  led  those  rail- 
ways to  offer  such  stubborn  resistance  to  the  efforts 
of  the  Interstate  Commerce  Commission  to  break 
down  the  basing-point  system. 

In  the  South,  as  elsewhere  in  the  United  States, 
the  basing  points  owe  their  existence  to  water  com- 
petition, to  railway  competition  or  to  the  fact  that 
they  are  the  centres  of  regions  whose  trade  is  deemed 
sufficient  to  call  for  basing  points.  But  this  does  not 
mean  that  every  point  with  water  competition  or  rail- 
way competition  will  become  a  basing  point,  nor  does 
it  mean  that  all  basing  points  enjoy  equal  advan- 
tages. For  example,  Birmingham  and  Atlanta  are 
on  a  footing  of  equality  as  regards  rates  from  the 


300  RAILWAY  RATES 

Atlantic  seaboard ;  but  as  regards  rates  from  the  Cen- 
tral West,  Birmingham  has  had,  since  1886,  the  ad- 
vantage over  Atlanta.  From  the  Central  West  the 
rates  were  the  same  to  the  two  cities  in  question  until 
the  Kansas  City,  Memphis  and  Birmingham  Road 
was  built  in  1886.  That  road  insisted  on  lowering 
the  rate  to  Birmingham  to  the  level  of  the  rate  to 
Chattanooga.  As  it  did  not  reach  Atlanta,  it  left 
the  Atlanta  rate  undisturbed.  The  Louisville  and 
Nashville  and  the  other  roads  reaching  both  Birming- 
ham and  Atlanta  tried  to  maintain  the  old  rate  to 
Birmingham,  but  finally  they  had  to  yield  to  the 
Kansas  City,  Memphis  and  Birmingham.  The  late 
Judge  Cooley  was  called  in  as  arbitrator,  and  the  dif- 
ferential which  he  awarded  to  Birmingham  on  traffic 
from  the  West  has  been  maintained  to  the  present 
day.  Again,  while  the  rates  from  the  West  to  Nor- 
folk are  the  same  as  the  rates  from  the  West  to  Balti- 
more, the  rates  from  the  West  to  Charleston  are 
double  the  Norfolk  rate.  It  so  happens  that  it  would 
be  impossible  to  lower  the  Charleston  rate  to  the 
Norfolk  level  without  having  public  opinion  force 
corresponding  reductions  to  Augusta,  Macon,  Atlanta 
and  other  points.  The  railways  hold  that  their  reve- 
nues could  not  bear  the  last-mentioned  reductions, 
and  hence  the  rates  to  Charleston  are  kept  high. 
Still  again,  for  some  years  past  the  Mobile  and  Ohio 
Railroad  has  insisted  upon  giving  Mobile  the  same 
low  rates  that  other  railroads  have  to  give  New  Or- 


THE   ADJUSTMENT   OF   RAILWAY   RATES        301 

leans  because  of  the  competition  from  the  coast 
steamers  and  the  Mississippi  River  steamers.  In 
consequence  of  this  action  of  the  Mobile  and  Ohio 
Railroad,  it  is  cheaper  to  ship  goods  from  the  North 
to  Mobile  and  then  back  to  Montgomery  —  a  dis- 
tance of  175  miles  —  than  it  is  to  ship  from  the  North 
directly  to  Montgomery.  If  the  railways  should 
lower  the  direct  rate  to  Montgomery,  competition 
and  public  opinion  would  force  them  to  make  cor- 
responding reductions  to  Columbia,  Eufaula,  Atlanta, 
Columbus  and  other  points.  Therefore  the  rail- 
roads continue  the  adjustment  of  rates  under  which 
goods  are  actually  shipped  to  Mobile  and  then  back 
to  Montgomery.  Finally,  there  are  some  basing 
points,  such  as  Cordele,  which  are  basing  points  for 
no  other  or  better  reason  than  that  some  railroad 
insisted  on  making  them  basing  points  and  was 
strong  enough  to  overrule  the  opposition  of  the  other 
roads.  To  sum  up,  there  are  many  rates  in  the  ter- 
ritory south  of  the  Ohio  and  Potomac,  as  ever3rwhere 
else  in  the  United  States,  that  seem  at  first  sight  to 
have  been  made  haphazard  and  as  a  matter  of  ca- 
price. But  upon  examination  they  turn  out  to  be 
the  result  of  compromise  effected  after  years  of  ex- 
perimenting —  compromise  between  rival  railways, 
between  rival  trade  centres  and  between  the  claims 
of  the  public  as  shippers  and  the  claims  of  the  rail- 
ways as  revenue-earning  properties.  To  use  the 
words  of  Mr.  M' Govern,  Chairman  of  the  Southern 


302  RAILWAY  RATES 

Classification  Committee,  the  existing  rates  have  been 
made  as  a  matter  of  judgment  and  arbitration,  con- 
troversy and  war.  They  have  been  heated  and  forged 
and  moulded  and  pounded  and  hammered  into  their 
present  shape  * 

The  importance  of  this  matter  justifies  the  repro- 
duction of  the  description  of  the  adjustment  of  rates 
The  Interdepend-  made  before  the  Industrial  Commis- 
ence  of  Railway  sion  by  Mr.  M.  C.  jSIarkham,  As- 
^'^^  sistant  Traffic  Manager  of  the  Illinois 

Central  Railroad.f  Mr.  Markham  began  by  stating 
that  the  Mississippi  River  fixed  the  rates  between 
New  Orleans  and  St.  Louis.  He  then  added  that, 
while  Mobile,  situated  140  miles  east  of  the  Missis- 
sippi River,  had  not  the  competition  of  a  river  to  force 
down  railway  rates,  it  had  railways  which  were  inter- 
ested in  enabling  Mobile  merchants  and  manufac- 
turers to  compete  in  common  markets  with  New 
Orleans  merchants  and  manufacturers.  Going  180 
miles  farther  to  the  northeast,  one  came  to  Montgom- 
ery and  Selma,  trade  centres  on  the  x^labama  River. 
The  railroads  reaching  Montgomery  and  Selma  had 
no  interest  in  New  Orleans  or  ^Mobile,  and  tried  to 
get  all  the  traffic  they  could  to  and  from  ^Montgomery 
and  Selma,  by  putting  those  towns  on  a  fair  plane 
respecting   rates   with   Mobile    and   New    Orleans. 


*  Report  of  the  Industrial  Commission  on  Transportation  (second  vol- 
ume) :  testimony  of  Mr.  P.  J.  M'Govern. 

t  Ibid.  :  testimony  of  Mr.  M.  C.  Markham. 


THE   ADJUSTMENT   OF   RAILWAY   RATES       303 

Going  still  farther  inland,  one  came  to  Meridian  and 
Jackson,  Miss.,  Birmingham,  Talladega  and  Gads- 
den, Ala.,  and  Chattanooga,  Tenn.,  on  the  one  side, 
and  Columbus,  Rome,  Atlanta,  Athens,  Macon  and 
Augusta,  Ga.,  and  other  towns  of  importance,  on 
the  other  side,  all  asking  of  the  railroads  which  served 
them  such  rates  as  would  enable  them  to  do  business 
in  common  territory  in  competition  with  New  Orleans, 
Mobile,  Montgomery  and  Selma,  as  well  as  in  com- 
petition with  one  another. 

In  the  same  way,  Galveston,  360  miles  west  of  New 
Orleans,  had  no  river  advantages,  but  the  railroads 
serving  it  enabled  its  merchants  and  manufacturers 
to  compete  in  northern  common  markets  with  the 
merchants  and  manufacturers  of  New  Orleans.  The 
adjustment  of  rates  which  the  Galveston  roads  had 
to  make  for  that  purpose  ultimately  was  extended  to 
the  outlying  and  intermediate  towns  between  Gal- 
veston and  the  Missouri  River,  and  between  Gal- 
veston and  the  Mississippi  River  north  of  Vicksburg, 
all  of  which  had  to  have  the  concessions  which  the 
forces  of  trade  warranted. 

Finally,  the  low  rates  made  by  the  railways  from 
St.  Louis  to  Memphis  and  New  Orleans,  on  account 
of  the  Mississippi  River,  had  to  be  met  by  the  rail- 
ways from  Chicago,  Cincinnati  and  many  other 
points,  in  order  to  enable  the  industries  of  the  last- 
named  cities  to  hold  their  own  with  the  industries  of 
St.  Louis.     In  this  way,  said  Mr.  Markham,  the  low 


304  RAILWAY   RATES 

rates  which  were  made  in  the  first  instance  to  meet 
the  competition  of  the  ^Mississippi  River,  uhimately 
were  extended,  wholly  or  in  part,  to  the  entire  north- 
em,  southern  and  southwestern  portions  of  the  United 
States. 

WTien  the  South  began  to  develop  manufacturing 
industries,  the  railways  of  the  South  encouraged 
Charging  what  the  industries  in  question  by  making 
the  Traffic  will  especially  low  rates  on  their  prod- 
^^'^^  ucts.     For  example,  the  rates  on  the 

manufactures  of  cotton  frequently  have  been  lower 
than  the  rates  on  the  raw"  material.  The  rates  on 
certain  manufactures  of  iron  frequently  are  as  low 
as  the  rates  on  pig  iron.  Again,  on  many  kinds  of 
manufactures  the  rates  within  the  territory  south  of 
the  Ohio  and  Potomac  are  lower  than  are  the  rates 
on  similar  manufactures  when  shipped  into  the  South 
from  the  North  and  the  Central  West. 

The  railways  of  the  South  have  not  confined  them- 
selves to  efforts  to  enable  southern  industries  to  meet 
the  competition  of  northern  and  western  industries 
in  the  South;  they  have  also  enabled  the  products 
of  southern  industries  to  invade  the  markets  of  the 
northern  and  western  industries.  For  that  purpose 
they  have  made  so-called  commodity  rates,  or  rates 
applicable  to  specific  articles  between  specific  points. 
Those  rates  are  made  as  low  as  the  competition  for 
the  market  demands.  For  example,  the  railways  re- 
cently made  a  commodity  rate  on  overalls  and  simi- 


THE   ADJUSTMENT   OF   RAILWAY   RATES        305 

lar  cotton  manufactures  from  Atlanta  to  St.  Louis,  for 
the  purpose  of  enabling  the  Atlanta  manufacturer  of 
overalls  to  invade  a  market  that  had  thus  far  been 
held  by  the  manufacturers  of  Baltimore  and  other 
cities. 

Commodity  rates  from  specific  points  in  the  South 
to  specific  points  in  the  North  and  the  West  are 
numerous,  and  they  are  increasing  with  the  increase 
in  the  number  of  articles  manufactured  in  the  South. 
The  southern  manufacturing  industries  in  iron,  cotton, 
furniture,  bags,  paper  boxes  and  so  forth  have  been 
built  up  very  largely  by  means  of  commodity  rates. 
Indeed,  the  industries  throughout  the  United  States 
have  been  aided  enormously  by  means  of  commodity 
rates,  which  have  established  for  many  articles  an 
almost  unrestricted  trade  over  the  whole  United 
States.  For  example,  from  such  widely  separated 
points  as  Grand  Rapids  in  Michigan,  Rochester  in 
New  York,  Harrisburg  in  Pennsylvania,  and  Atlanta 
in  Georgia  commodity  rates  on  furniture  and  other 
manufactures  of  wood  are  made  to  all  of  the  princi- 
pal markets  in  the  United  States.* 

The  practice  of  making  commodity  rates  adds 
greatly  to  the  complexity  of  the  rate  situation.  It 
makes  one  set  of  rates  on  Southern  manufactures 
destined  for  a  southern  market,  and  another  set  of 

*  Report  of  the  Industrial  Commission  on  Transportation  :  testimony 
of  Mr.  G.  R.  Blanchard,  late  Commissioner  of  the  former  Joint  Traffic 
Association  ;  and  testimony  of  Mr.  P.  J.  M'Govern,  Chairman  of  the 
Southern  Classification  Committee. 


306  RAILWAY   RATES 

rates  for  southern  manufactures  destined  for  a  mar- 
ket in  the  North  or  in  the  West.  The  former  set  of 
rates  is  made  with  a  view  to  enabling  southern  manu- 
factures to  meet  in  the  South  the  competition  of 
northern  and  western  manufactures ;  the  latter  set  of 
rates  is  made  to  enable  the  southern  manufactures  to 
invade  the  northern  and  western  markets.  In  each 
case  a  compromise  has  to  be  effected  between  the  rival 
claims  of  the  competing  railways  and  industries  of 
the  South,  the  North  and  the  West.  It  is  one  of  the 
main  functions  of  traffic  associations  to  effect  that 
compromise. 

One  of  the  most  striking  regulations  of  the  course 
of  trade  effected  by  traffic  associations  is  the  parti- 
Struggle  of  the  tion  of  the  trade  of  the  region  south 
Atlantic  Seaboard  q{  the  Ohio  and  the  Potomac  be- 
'^i'^f'/T^i     tween  the  commercial  centres  of  the 

West  for  Trade 

with  Southeastern  Atlantic  scaboard  and  those  of  the 
states  Central   West.*      In    the    seventies, 

when  this  partition  was  effected,  the  South  im- 
ported its  merchandise  and  its  manufactures  mainly 
from  the  Atlantic  seaboard  territory,  while  it  im- 
ported its  food-stuffs,  "in  the  solid  and  liquid  forms 
of  corn,  bacon,  flour  and  whiskey,"  from  the  Cen- 
tral West,  which  at  that  time  was  still  largely  a 
farming  region.     There  was  then,  as  there  is  now, 

*  Decisions  of  the  Interstate  Commerce  Commission  of  the  United  States, 
Vol.  VI,  Freight  Bureau  of  the  Cincinnati  Chamber  of  Commerce  v.  7 he 
Cincinnati,  New  Orleans  and  Texas  Pacific  Railway  Co.,  et  at. 


THE  ADJUSTMENT   OF  RAILWAY  RATES       307 

the  keenest  competition  between  the  railways  from 
the  Atlantic  seaboard  to  the  South  and  the  coast 
vessels,  as  well  as  intense  rivalry  between  the  rail- 
ways leading  into  the  South  from  the  Atlantic  sea- 
board and  those  running  from  Chicago,  St.  Louis, 
Cincinnati  and  other  points  of  the  Middle  West. 
When  competition  was  especially  keen,  manufactures 
and  merchandise  from  New  York  went  by  rail,  or 
lake  and  rail,  to  Chicago,  or  by  rail  to  St.  Louis  and 
thence  by  rail  into  the  South.  Conversely,  the  agri- 
cultural products  of  the  Middle  West  would  go  by 
rail,  or  by  lake  and  rail,  to  the  Atlantic  seaboard  and 
thence  by  coast  vessel  to  the  South.  Under  those 
arrangements,  rates  were  frequently  badly  demor- 
alized in  the  territory  north  of  the  Ohio  and  Potomac, 
and  the  railways  of  the  South  were  continually  drawn 
into  the  disputes  among  their  northern  connections. 
For  the  purpose,  therefore,  of  regulating  the  com- 
petition between  the  railways  of  the  Atlantic  seaboard 
territory  and  the  railways  of  the  Central  West,  it  was 
agreed,  among  the  railways  of  the  South,  the  Cen- 
tral West  and  the  Atlantic  seaboard,  that  the  trade 
with  the  South  in  food-stuffs  should  be  awarded  to 
the  Middle  West  and  its  railways,  while  the  trade  in 
merchandise  and  manufacture  should  be  awarded 
to  the  Atlantic  seaboard  territory  and  its  railways. 
Roundabout  shipments  of  merchandise  and  manu- 
factures from  the  Atlantic  seaboard  by  way  of  Chicago 
and  St.  Louis  were  to  be  stopped  by  a  prohibitory 


308  RAILWAY  RATES 

rate  when  the  articles  in  question  were  shipped  from 
Chicago  and  St.  Louis.  On  the  other  hand,  ship- 
ments of  agricultural  products  by  way  of  the  eastern 
seaboard  were  to  be  prevented  by  prohibitory  rates 
from  the  seaboard.  In  other  words,  an  additional 
charge  of  at  least  lo  cents  per  loo  pounds  was  im- 
posed on  "w^estem"  goods  when  carried  by  "eastern" 
lines,  as  well  as  on  "eastern"  goods  when  carried  by 
"western"  lines.  This  arrangement,  with  modifica- 
tions, has  been  maintained  to  the  present  day.* 

Since  the  foregoing  adjustment  of  rates  was  effected 
in  1878,  the  Central  West  has  developed  extensive 
industries,  especially  the  manufacture  of  furniture, 
wagons,  carriages,  stoves,  agricultural  implements, 
shoes,  clothing  and  saddlery.  As  early  as  1890, 
all  the  manufactures  in  question  were  sold  as  far 
east  as  Rochester  and  Albany,  N.Y. ;  as  far  west 
as  the  Pacific  coast ;  and  to  a  greater  or  less  extent 
over  the  South,  from  Texas  and  Arkansas  to  the 
Virginias.  At  the  time  just  mentioned,  the  mer- 
chants and  manufacturers  of  the  Central  West  met 
with  strong  competition  from  the  Atlantic  seaboard 
merchants  and  manufacturers  in  the  sale  of  goods 
in  Alabama,  East  Tennessee,  Florida,  Georgia,  the 

*  Report  of  the  Industrial  Commission  on  Transportation  (second  vol- 
ume) :  testimony  of  Mr.  W.  L.  Guillauden,  President  of  the  Old  Dominion 
Steamship  Company  :  "  It  is  fully  twenty  years  since  there  has  been  any  gen- 
eral movement  of  grain  and  other  agricultural  products  from  the  West  to 
the  South  by  way  of  New  York.  There  is  some  traffic  from  the  West  by  way 
of  Baltimore  and  Philadelphia  for  points  south  of  Cape  Hatteras,  but  the 
great  volume  of  western  freight  goes  into  the  South  directly  by  way  of  the 
Ohio  and  Mississippi  River  towns." 


THE   ADJUSTMENT   OF   RAILWAY   RATES       309 

Carolinas  and  the  Virginias.  They  were  not  driven 
out  of  this  territory  altogether  by  the  competition 
from  the  East ;  but  their  business  and  the  profit  on  it 
were  not,  as  a  rule,  so  great  as  in  the  other  markets. 
In  some  instances  they  were  required  by  their  cus- 
tomers to  ''equalize  rates"  —  that  is,  to  refund  any 
excess  of  the  freight  rates  on  their  goods  over  the 
rates  on  goods  of  the  same  kind  shipped  from  the 
eastern  seaboard  territory.* 

The  railways  of  the  Central  West  from  time  to  time 
have  asked  for  a  general  readjustment  of  the  rates 
from  the  East  and  the  West,  alleging  that  the  shifting 
of  the  centre  of  population  to  the  Southwest  and  the 
development  of  manufacturing  in  the  territory  west 
of  the  Alleghany  Mountains  has  made  necessary  a 
readjustment  of  rates,  in  the  interest  of  the  Central 
West.  Thus  far  the  eastern  railways  have  been  able 
to  prevent  any  general  readjustment,  but  they  have 
been  obliged  from  time  to  time  to  concede  readjust- 
ments of  rates  on  specific  articles  which  were  coming 
to  be  manufactured  extensively  in  the  Central  West. 
Under  those  readjustments  the  Central  West  is 
constantly  increasing  its  trade  in  manufactures  with 
the  South. f    These  rearrangements  are  compromises ; 

*  Freight  Bureau  v.  Cincinnati,  New  Orleans  and  Texas  Pacific  Rail- 
way Co.,  et  al. 

t  Compare  Report  of  the  Industrial  Commission  on  Transportation 
(second  volume):  testimony  of  Mr.  E.  P.  Wilson,  Secretary  of  various  Ohio 
commercial  organizations;  of  Mr.  M.  C.  Markham,  Assistant  Traffic 
Manager  Illinois  Central  Railroad ;  and  of  Mr.  W.  L.  Guillauden,  Presi- 
dent  Old  Dominion  Steamship  Company. 


310  RAILWAY  RATES 

and,  like  all  compromises,  they  are  not  wholly  satis- 
factory to  any  interest  and  are  very  unsatisfactory  to 
some  interests.  But  when  they  are  contrasted  with 
the  deadlocks  occurring  constantly  in  Europe  under 
the  public  regulation  of  railway  rates,  —  either 
through  the  assumption  of  public  ownership  or 
through  the  public  super\'ision  of  the  rates  made  by 
corporations, — they  are  eminently  satisfactory.  The 
compromises  in  question  are  a  striking  illustration  of 
the  fact  that  in  the  United  States  railway  rates  are 
made  by  the  forces  of  trade  and  commerce;  that 
they  are  a  result,  rather  than  a  cause ;  and  that  they 
register  the  resultant  of  the  manv  and  diverse  forces 
which  produce  the  rise  and  fall  of  industries. 

The  story  of  the  distribution  over  the  West  of  the 
merchandise  and  manufactures  of  the  East  affords  fur- 
The  West  iilus-  ^^^^  illustrations  of  the  extraordinary 
trates  the  Com-  Complexity  of  the  problem  of  railway 
piexity  of  the  j-atcs.  The  first  railways  into  the 
West  were  built  from  Chicago  and  St. 
Louis,  and  so  the  problem  originally  was  to  distribute 
between  Chicago  and  St.  Louis  the  trade  with  the 
West.  But  as  railways  were  built  into  the  West  from 
IMinneapolis,  St.  Paul  and  Duluth  in  the  North,  and 
from  New  Orleans  and  Galveston  in  the  South,  —  as 
well  as  from  numerous  intermediate  points,  —  the 
problem  became  more  and  more  complex  and  difficult. 

As  early  as  1876  the  railways  leading  into  the  West 
from  Chicago  and  St.  Louis  agreed  that  the  St.  Louis 


THE   ADJUSTMENT   OF   RAILWAY   RATES       311 

railways  should  have  certain  differentials  on  all  com- 
petitive west-bound  traffic  which  passed  between  Chi- 
cago, Hannibal  or  St.  Louis,  on  the  one  hand,  and 
St.  Joe,  Atchison,  Leavenworth  or  Kansas  City,  on 
the  other  hand,  to,  through  or  beyond  any  of  these 
points.  These  differentials  neutralized,  on  freight 
passing  into  the  West  by  way  of  the  cities  just  men- 
tioned, the  fact  that  the  freight  charge  from  eastern 
points  to  St.  Louis  is  114  per  cent  of  the  charge  to 
Chicago ;  and  they  have  been  maintained  to  the  pres- 
ent day.  The  arrangement  applied  to  competitive 
freight  only ;  it  did  not  apply  to  lumber,  for  example, 
because  Chicago  had  the  monopoly  of  the  lumber 
trade,  and  the  St.  Louis  railways  knew  it  was  useless 
to  dispute  that  monopoly.  This  fact  shows  once  more 
how  American  railway  rates  adapt  themselves  to  the 
forces  of  trade,  instead  of  seeking  to  make  the  forces 
of  trade  adapt  themselves  to  theories  of  railway  rates. 

Shortly  after  the  St.  Louis  differentials  had  been 
established,  a  railroad  was  built  from  Toledo,  Ohio, 
to  the  Missouri  River  by  way  of  Hannibal,  Mo. 
Hannibal  thus  became  the  Missouri  River  terminal 
of  a  rail  and  water  route  from  the  seaboard,  and  was 
enabled  to  force  St.  Louis  and  Chicago  to  concede  to 
it  10  per  cent  of  the  traffic  to  and  from  the  West.  The 
remainder  of  the  traffic  St.  Louis  and  Chicago  divided 
between  themselves,  share  and  share  alike. 

When,  in  the  later  nineties,  the  Kansas  City,  Pitts- 
burg and  Gulf  Railroad  had  been  completed  between 


312 


RAILWAY   RATES 


Galveston  and  Kansas  City,  this  road  asked  the 
roads  to  the  north  of  Kansas  City  to  cooperate 
with  it,  by  allowing  it  to  make  rates  which  would 
secure  to  it  a  share  in  the  traffic  between  the  eastern 
seaboard  and  Kansas  City,  Omaha,  Denver,  Chey- 
enne and  Deadwood.  The  roads  leading  into  the 
West  from  Kansas  City,  Chicago  and  St.  Louis  pro- 
tested, on  the  ground  that  the  combined  water  and 
rail  route  from  the  East  by  way  of  Galveston  was  too 
roundabout  and  too  long  to  come  within  the  limits  of 
legitimate  competition  *  Thereupon  the  Kansas 
City,  Pittsburg  and  Gulf  cut  its  rates  to  less  than  9 
mills  per  ton-mile  on  first-class  traffic  and  to  less  than 
3.8  mills  on  sixth-class  traffic.  In  the  fiscal  year 
1897-98,  the  road  in  question  received  for  carrying 
freight  on  an  average  5.7  mills  per  ton-mile,  as 
against  10.  i  mills  received  by  the  other  railways  in 
the  territory  served  by  the  Kansas  City,  Pittsburg 
and  Gulf  Railroad.  The  railroad  was  bankrupted, 
but  it  established  its  claim  to  a  share  in  the  traffic 
between  the  seaboard  and  the  territory  between  the 

*  The  Railroad  Gazette,  October  20,  1899. 


Distance  from  New  York  to 

Kansas  City 

Omaha 

Denver 

Cheyenne      

Deadwood 


Rail  and  Water 


Miles 

3136 
3330 

3775 
3846 

3964 


THE   ADJUSTMENT   OF   RAILWAY   RATES       313 

Mississippi  River  and  the  Sierra  Mountains.  And 
the  people  living  in  the  last-mentioned  territory 
henceforth  will  enjoy  the  benefit  of  the  competition 
between  the  roads  leading  directly  to  the  Atlantic  sea- 
board and  the  roads  leading  to  the  Gulf  ports.  From 
eastern  cities  lying  as  far  inland  as  Buffalo  freight  is 
sent  to  the  Atlantic  seaboard,  thence  to  Galveston  and 
thence  to  points  on  the  Missouri  River  and  west  of  the 
Missouri  River,  in  competition  with  the  direct  all-rail 
routes  by  way  of  Chicago,  St.  Louis  and  Kansas  City. 

Contrast  the  elasticity  of  America  with  the  cast- 
iron  rigidity  of  Germany,  where  the  fixing  of  railway 
rates  by  public  authority  has  destroyed  Bremen's  im- 
port trade  in  petroleum ;  has  prevented  Bremen  from 
building  up  an  export  business  in  sugar,  the  greatest 
single  article  of  export  from  Germany ;  and  has  neces- 
sitated the  duplication  of  the  railway  running  from 
Stettin  to  Berlin,  by  means  of  a  canal  that  shall  carry 
650-ton  vessels.  Contrast  the  situation  in  the  United 
States  with  the  situation  in  Australia,  where  the  mak- 
ing of  railway  rates  by  public  authority  has  concen- 
trated in  three  seaboard  cities  the  trade  that,  under 
the  making  of  railway  rates  by  the  railways  them- 
selves, would  have  been  distributed  among  half-a- 
dozen  seaboard  cities  and  numerous  interior  jobbing 
centres. 

Further  light  upon  the  nature  of  the  conflict  be- 
tween rival  distributing  centres  is  to  be  obtained  from 
a  study  of  the  trade  between  the  Pacific  coast  region 


314 


RAILWAY   RATES 


and  the  territory  between  the  Atlantic  seaboard  and 
Chicago  and  St.  the  Missouri  River*  The  transcon- 
Louis  versus  the  tinental  Hnes  have  to  make  commodity 
Pacific  Coast  rates  on  some  1500  articles  of  trafi&c 
between  the  Atlantic  and  the  Pacific  seaboards, 
in  order  to  meet  the  competition  of  sailing  vessels 
and  steamers  around  Cape  Horn,  and  the  compe- 
tition of  the  combined  land  and  water  route  by 
way  of  the  Isthmus  of  Panama.f  These  commodity 
rates  have  in  course  of  time  come  to  be  extended  to 
the  whole  territory  between  the  Missouri  River  and 
the  Atlantic  coast  —  in  other  words,  they  have  be- 
come postage-stamp  rates.  These  rates  have  a 
double  justification.  In  the  first  place,  the  effect 
of  the  water  competition  around  Cape  Horn  ex- 
tends into  the  interior  of  the  United  States,  as  far 
west   as    the    Missouri   River.     Freight   originating 

*  Report  of  the  Industrial  Commission  on  Transportation  (second  vol- 
ume) :  testimony  of  Mr.  J.  C.  Stubbs,  third  Vice-President  of  the  Southern 
Pacific  Company,  and  Mr.  W.  R.  WTieeler,  representing  Pacific  Coast 
Jobbers'  Association. 

t  The  Foreign  Commerce  and  Navigation  of  the  United  States,  1901. 


Value 

OF 

THE  Merchandise 
Francisco  via 

SHIPPED    BETWEEN   NeW  YORK  AND   SaN 

THE  Isthmus  of  Panama 

New  York  to 
San  Francisco 

San  Francisco 
TO  New  York 

1890 

1895 

1900 

%  2,090,000 
3,389,000 
5,052,000 

%    969,000 
1,971,000 
1,766,000 

The  list  of  articles  extends  from  pig  iron  to  confectionery  and  piano- 
fortes. 


THE   ADJUSTMENT   OF   RAILWAY   RATES        315 

anywhere  on  or  east  of  the  Missouri  River  can  go  to 
the  Pacific  coast  by  going  directly  westward,  or  by 
going  eastward  to  the  sea  and  thence  by  water.  In 
the  second  place,  the  railways  which  extend  westward 
from  Pittsburg,  Chicago,  St.  Louis,  St.  Paul,  Omaha 
and  similar  points  find  it  to  their  interest  to  develop 
the  industries  of  their  respective  territories,  by  making 
the  same  low  rate  to  the  Pacific  coast  that  the  sea- 
board roads  make.  They  are  not  willing  that  the 
Atlantic  seaboard  shall  have  a  monopoly  of  the 
trade  with  the  Pacific  coast. 

This  arrangement  of  rates  —  which  to  the  unso- 
phisticated person  would  seem  to  be  ideal,  in  that 
it   puts   every  one  between  the   At- 

a  lira    tgt  s    \^^^:^^  coast  and  the  Missouri  River 

to  Trade 

on  a  footing  of  equality  in  the  com- 
petition for  the  Pacific  coast  trade  —  is  not  satisfac- 
tory to  the  Atlantic  seaboards  or  to  the  Central  West  or 
to  the  Pacific  coast.  The  Atlantic  seaboard  protests 
against  the  extension  of  the  low  rates  to  the  people 
of  Chicago  and  St.  Louis.  It  contends  that  the 
ocean  is  a  "natural"  means  of  transportation,  and 
that  location  upon  its  shores  entitles  one  to  a  "natu- 
ral advantage"  over  him  who  is  served  only  by  a 
railway,  an  ''unnatural"  and  "artificial"  agency  of 
transportation.  The  people  of  Chicago,  on  the  other 
hand,  contend  that  Chicago  should  have  a  lower  rate 
than  New  York  because  it  is  nearer  to  the  Pacific 
coast  by  rail.     St.  Louis  extends  this  reasoning  and 


316  RAILWAY  RATES 

demands  a  rate  lower  than  the  Chicago  rate.  The 
jobbers  of  the  Pacific  coast,  on  the  other  hand,  con- 
tend that  neither  Chicago  nor  St.  Louis  should  be 
allowed  to  share  in  the  jobbing  trade  of  the  Pacific 
coast,  which  by  "natural  right,"  they  say,  belongs 
to  the  Pacific  coast  cities.  Says  the  man  whom  the 
Pacific  Coast  Jobbers'  and  Manufacturers'  Asso- 
ciation recently  put  forward  for  appointment  to  the 
Interstate  Commerce  Commission  of  the  United 
States  :  "The  people  who  pioneered  San  Francisco 
did  not  go  there  because  of  the  beauty  of  its  location 
or  because  the  climate  was  particularly  attractive. 
They  went  because  of  its  commercial  possibilities. 
They  recognized  it  as  the  entrepot  to  the  Pacific  coast, 
and  the  wisdom  of  their  action  has  been  demon- 
strated. That  was  when  goods  moved  by  sea  entirely. 
San  Francisco  became  the  gateway  to  the  entire 
Pacific  coast.  Goods  were  distributed  up  the  rivers 
or  redistributed  from  San  Francisco  up  the  coast 
and  down  the  coast  and  back  into  the  interior  by 
team,  and  finally  local  railways  were  built,  which 
in  turn  became  distributive  agents,  and  in  the  course 
of  time  the  transcontinental  railway  was  built."  The 
representative  of  the  Pacific  Coast  Jobbers'  Associa- 
tion next  tells  us  that  the  water^^ay  between  San 
Francisco  and  Xew  York  is  "God's  highway"; 
whose  highways  the  transcontinental  lines  are  he 
leaves  us  to  infer  from  his  vigorous  disapproval  of 
the  Chicago  roads'  practice  of  "arbitrarily  bestow- 


THE  ADJUSTMENT   OF   RAILWAY  RATES        317 

ing"  upon  the  Chicago  jobber  and  manufacturer 
the  power  "to  reach  out  into  the  other  fellow's  ter- 
ritory on  the  Pacific  coast." 

The  same  conflict  of  interests  that  exists  between 
the  cities  of  the  Central  West  and  the  cities  of  the 
Pacific  coast  is  to  be  found  between  the  southern 
and  the  northern  transcontinental  lines.  The  Atchi- 
son, Topeka  and  Santa  Fe  and  the  Southern  Pacific 
railroads  are  ready  to  grant  the  request  of  the  San 
Francisco  jobber  that  the  difference  between  the  rate 
on  car-load  lots  and  the  rate  on  less  than  car-load 
shipments  be  made  large  enough  to  afford  the  San 
Francisco  jobber  a  certain  degree  of  protection  against 
the  competition  from  the  jobber  of  the  Central  West. 
The  roads  in  question  lead  to  San  Francisco,  whose 
jobbers  are  sufficiently  powerful  to  guarantee  the 
San  Francisco  railways  a  due  share  in  the  transcon- 
tinental traffic.  The  Northern  Pacific  and  the  Great 
Northern,  on  the  other  hand,  end  on  the  Puget  Sound, 
whose  cities  are  not  yet  very  large,  and  are  there- 
fore not  in  a  position  to  guarantee  the  northern 
railways  the  traffic  which  San  Francisco  guarantees 
the  southern  ones.  The  Northern  Pacific  and  the 
Great  Northern,  therefore,  are  inclined  to  yield  to 
the  demand  of  St.  Louis  and  Chicago  for  compara- 
tively small  differences  between  the  rates  on  car-load 
shipments  and  less  than  car-load  shipments.  In  the 
long  run  the  Northern  Pacific  and  the  Great  Northern 
are  more  interested  in  the  Puget  Sound  cities  than  in 


318  RAILWAY   RATES 

St.  Louis  and  Chicago ;  but  the  immediate  needs  of 
their  treasuries  will  not  allow  them  to  pursue  an 
extreme  policy  of  protection  to  the  Puget  Sound 
cities.  To  build  up  a  jobbing  trade  on  the  Puget 
Sound  requires  time ;  and  in  the  interval  the  northern 
transcontinental  lines  find  it  worth  while  to  culti- 
vate the  good-will  of  the  jobbers  at  St.  Louis  and 
Chicago.  And  that  shows  once  more  the  part  played 
by  expediency  and  compromise  in  the  adjustment  of 
railway  rates. 


CHAPTER  V 

THE  DECISIONS   OF   THE   INTERSTATE   COMMERCE 
COMMISSION 

Export  and  Import  Rates 

Since  early  in  the  seventies,  the  railways  of  the 
United  States  have  made  materially  lower  rates  to 
the  Atlantic  seaboard  on  grain,  flour,  bacon,  pork, 
beef,  lard,  canned  goods,  oil-cake,  tobacco  and  cotton, 
when  destined  for  export,  than  when  destined  for 
domestic  consumption.  On  February  lo,  1888,  for 
example,  the  rates  on  bacon,  pork,  lard,  beef  and 
canned  goods  were  33  cents  per  100  pounds,  if  these 
articles  were  intended  for  domestic  consumption, 
and  17.375  cents  if  they  were  intended  for  export. 
On  flour  the  two  sets  of  rates  were,  respectively,  27.5 
cents  and  14.625  cents.  Each  of  the  railways  engaged 
in  carrying  our  agricultural  products  to  the  seaboard, 
moreover,  has  agents  stationed  at  the  seaboard  and  at 
the  great  inland  market  centres,  whose  business  it  is 
to  keep  informed  of  the  daily  and  hourly  changes  in 
the  prices  of  agricultural  staples  in  the  European 
markets,  and  to  adjust  the  export  railway  rates  to 
fluctuations  in  those  prices.    This  practice  of  dis- 

319 


320  RAILWAY  RATES 

crimination  between  grain  for  export  and  grain  for 
domestic  consumption  has  been  of  the  greatest  value 
to  the  American  farmer,  in  that  it  has  promoted  the 
steady  flow  to  Europe  of  our  agricultural  products, 
and  has  thus  prevented  such  undue  accumulations 
in  this  country  as  would  have  seriously  depressed  the 
price  in  the  world's  market  at  Liverpool.  It  has  also 
facilitated  a  general  reduction  in  the  transportation 
charges  on  grain  for  export,  and  thus  has  tended  to 
sustain  the  farm  price  of  agricultural  products  here; 
for  the  difference  in  price  between  wheat  on  the 
American  farm  and  wheat  at  Liverpool  averages 
something  like  the  transportation  charges  from  the 
farm  to  Liverpool.  It  has  been  in  the  past,  and  still 
remains,  out  of  the  question  for  our  railways  to  lower 
their  rates  on  agricultural  products  destined  for  do- 
mestic consumption  to  the  level  of  the  rates  on  such 
products  destined  for  export.  The  revenues  of  the 
railways  could  not  bear  the  loss.  The  alternative  to 
the  existing  discrimination  between  rates  for  export 
and  rates  for  domestic  consumption  would  be,  not 
lower  rates  for  domestic  consumption,  but  higher 
rates  for  export,  with  consequent  lowering  of  the  price 
of  wheat  on  the  American  farm. 

But  while  the  discrimination  under  discussion  re- 
New  York  City  dounds  to  the  advantage  of  the  Ameri- 
versus  the  West-  can  farmer,  it  tends  at  the  same  time 
em  Farmer  ^^   eliminate  from   the   export   busi- 

ness  the   middleman   at   the  Atlantic  ports.     The 


THE   DECISIONS   OF  THE   COMMISSION  321 

owner  of  a  grain  elevator  at  New  York  City  cannot 
compete  with  the  western  owner  of  a  grain  elevator, 
if  he  has  to  pay  the  domestic  rate  on  grain  shipped  to 
New  York,  to  be  held  there  for  subsequent  sale  either 
in  the  domestic  market  or  abroad,  while  his  western 
competitor  can  obtain  the  export  rate  on  grain  sent  on 
through  bills  of  lading  directly  from  the  West  to 
Liverpool.  It  is  apparent  that  the  Atlantic  seaboard 
dealer  must  either  withdraw  from  the  export  business, 
confining  his  attention  to  the  domestic  trade,  or 
establish  branches  at  western  points.  So  far  as 
he  establishes  western  branches  and  ships  from  the 
West  on  through  bills  of  lading,  he  ceases  to  use 
his  Atlantic  seaboard  elevators  for  the  storage  of 
grain  for  export.  That  in  turn  not  only  impairs 
the  value  of  his  elevators,  but  also  curtails  the  em- 
ployment on  the  Atlantic  seaboard  of  laborers, 
lawyers,  bankers  and  others  directly  and  indirectly 
dependent  upon  the  business  of  storing  grain  in  ele- 
vators. It  is  readily  understood,  accordingly,  why 
in  1889  the  New  York  Produce  Exchange,  alarmed 
at  the  decline  in  the  use  made  of  grain  elevators  in 
New  York  City,  applied  to  the  Interstate  Commerce 
Commission  for  relief.  The  practice  of  discriminat- 
ing between  grain  for  export  and  grain  for  domes- 
tic consumption  likewise  promoted  the  export  of 
grain  by  way  of  Baltimore  and  Philadelphia,  instead 
of  New  York,  by  enabling  the  railroads  leading 
to  these  cities  to  cut  export  rail  rates  for  the  purpose 


322  RAILWAY  RATES 

of  neutralizing  in  part  their  variable  higher  ocean 
rates.  This  was  a  further  reason  why  the  New  York 
Produce  Exchange  appealed  to  the  Interstate  Com- 
merce Commission  for  the  abolition  of  discriminating 
rates  in  favor  of  export  grain. 

The  Interstate  Commerce  Commission  rejected 
the  argument  of  the  railways  that  the  conditions  under 
which  grain  for  domestic  use  and  grain  for  export 
were  carried  were  essentially  dissimilar,  in  that  ex- 
port grain  had  to  meet  in  Liverpool  the  competition 
of  grain  from  Argentina,  Russia,  the  Danubian  Prin- 
cipalities, India  and  Australia.  It  said  that  "con- 
siderations relating  to  competition  in  foreign  markets 
or  what  are  called  the  markets  of  the  world,  do  not 
aid  the  interpretation  of  a  domestic  statute,  nor  so 
enlarge  its  application  as  to  make  it  effective  upon 
the  ocean,  and,  by  reflex  influence,  authorize  different 
standards  for  internal  rates."  To  justify  a  discrimi- 
nation between  rates  on  grain  for  domestic  use  and 
grain  for  export,  the  defendants  must  show  that  the 
conditions  under  which  the  two  kinds  of  traffic  were 
carried  differed  at  New  York,  or  between  western 
points  and  New  York;  it  would  not  avail  them  to 
show  that  the  market  conditions  at  Liverpool  differed 
from  the  market  conditions  at  the  Atlantic  seaboard. 
It  therefore  ordered  "that  the  several  defendants 
cease  and  desist  from  unjustly  discriminating  in  their 
rates  and  charges  for  inland  transportation,  between 
traffic  consigned  on  through  bills  to  foreign  ports 


THE  DECISIONS  OF  THE  COMMISSION  323 

from  interior  points,  and  like  traffic  consigned  to  the 
seaboard."  * 

It  is  necessary  to  add  that,  in  the  deHvery  of  the 
opinion  and  order,  the  Commission  did  two  things 
Characteristic  that  have  been  rather  characteristic 
Attitude  of  the  of  it.  It  resorted  to  an  appeal  to 
Comtmsston  popular  prejudice  that   is  unbecom- 

ing a  court,  though  admirably  adapted  to  the 
purposes  of  a  stump  speech ;  and  it  showed  inability 
to  understand  the  reasoning  that  explains  how  prices 
are  fixed  in  the  world  markets.  The  Commission 
said  that  the  discrimination  complained  of  gave 
"foreign  purchasers  advantages  over  home  dealers, 
and  established  prices  in  foreign  markets  for  the  en- 
tire products  exported,  and,  to  some  extent,  for  the 
domestic  sales  as  well."  For  the  charge  of  prefer- 
ence to  foreign  purchasers  over  home  dealers  there 
was  no  justification.  The  practice  complained  of 
gave  advantages  to  the  persons  who  shipped  on 
through  bills  from  the  interior,  and  the  mere  fact 
that  among  such  persons  were  the  agents  of  Euro- 
pean importers  of  grain  did  not  justify  the  charge  of 
preferring  foreign  purchasers  over  home  dealers. 
The  further  charge  that  the  rates  complained  of 
''established  prices  in  foreign  markets  for  the  entire 
products  exported,  and,  to  some  extent,  for  the  do- 
mestic sales  as  well,"  was  an  indorsement  of   the 

*  Reports  and  Decisions  of  the  Interstate  Commerce  Commission,  Vol. 
Ill,  The  New  York  Produce  Exchange  v.  The  Nsw  York  Central  and 
Hudson  River  Railroad  C«.,  et  al. 


324  RAILWAY  RATES 

unsound  argument  with  which  the  New  York  Prod- 
uce Exchange  supported  its  complaint.  That  or- 
ganization said,  "The  theory  that  the  inland  export 
rate  ought  to  be  more  flexible  than  the  inland  tariff 
rate,  in  order  to  place  our  surplus  crops  abroad,  is  all 
a  misconception. 

"Our  exportable  surplus  of  wheat,  for  example,  is 
about  100,000,000  bushels.  Of  this  quantity  Great 
Britain  absorbs  about  four-fifths,  or  80,000,000. 
That  the  market  value  of  the  exportable  surplus 
product  of  any  country  fixes  the  value  of  the  whole 
crop,  is  a  well-known  and  established  fact.  Prices 
would  advance  in  England  if  our  surplus  was  with- 
held, or  its  exportation  merely  checked.  The  attempt 
of  the  railroad  companies,  therefore,  to  meet  markets 
on  Indian  competition,  etc.,  is  a  direct  and  positive 
injury  to  the  producer;  because  thereby  the  surplus 
is  hurried  to  market,  and  prices  depressed,  not  only 
on  the  quantity  thus  prematurely  marketed,  but  of 
the  entire  crop,  far  below  the  nominal  or  actual  value, 
if  the  regular  course  of  supply  and  demand  is  allowed 
to  prevail.  Therefore,  instead  of  helping  the  farmer, 
they  create  a  new  and  uncertain  commercial  factor, 
which,  while  it  injures  every  producer,  by  artificially 
depressing  prices,  at  the  same  time  reduces  the  legiti- 
mate earnings  of  the  railroad  companies,  cui  bono?^^ 

The  Interstate  Commerce  Commission,  in  indorsing 
this  reasoning,  put  itself  on  a  level  intellectually  with 
the  Russian  bureaucrats  who,  not  many  years  ago, 


THE   DECISIONS   OF   THE   COMMISSION  325 

rejected  the  farmers'  request  that  railway  rates  be 
„,   ^  lowered  to  such  a  point  as  to  permit 

The  Commission  ^  ^  ^ 

and  the  Russian     the  raising  of  more  wheat  for  export 
Bureaucracy  on     on  the  lands  in  the  distant  interior  of 

Common  Ground    -p,        •       rry\^  i  ^u    i.  i.i.    n      j 

Russia.  1  he  reply  came  that  the  flood- 
ing of  the  Liverpool  market  with  Russian  wheat 
would  depress  the  price  of  the  grain  in  Liverpool 
and  in  Russia,  would  redound  to  the  benefit  of  the 
foreigner  and  would  mean  the  waste  of  the  Russian 
nation's  labor  and  resources  of  soil. 

Immediately  after  the  Interstate  Commerce  Com- 
mission had  delivered  the  opinion  in  which  it  con- 
demned the  rates  complained  of  by  the  New  York 
Produce  Exchange,  the  Chambers  of  Commerce  of 
Minneapolis  and  Indianapolis,  with  various  associa- 
tions of  western  millers  and  farmers,  protested  that 
the  farmer  at  the  West  was  raising  wheat  in  order  to 
make  a  living,  not  for  the  purpose  of  maintaining  the 
grain  elevator  and  commission  business  at  New  York 
City.  The  western  people  saw  clearly  that  the  en- 
forcement of  the  order  of  the  Interstate  Commerce 
Commission  would  mean  lower  prices  for  western 
produce.*    A  serious  conflict  of  sectional  interests 

*  The  Railroad  Gazette,  July  6  and  August  lo,  i888  ;  April  I2,  1889  ; 
and  July  26,  1889. 

Compare  also :  Report  of  the  Industrial  Commission  on  Transporta- 
tion, Vol.  IV,  p.  234,  testimony  of  Mr.  S.  R.  Callaway,  President  New 
York  Central  and  Hudson  River  Railroad  Co. :  "  Yes,  we  have  agents ; 
export  agents  in  Chicago,  and  export  agents  in  New  York,  and  they  get 
the  prices  of  these  commodities  in  Liverpool  every  day,  and  they  get  the 
ocean  freight.  The  whole  thing  has  to  be  done  as  one  ;  you  must  land 
that  stuff   in   Liverpool.  .  .  .      We   have   a   corn   crop   here   of  about 


326  RAILWAY  RATES 

would  thus  have  been  precipitated,  had  not  the  order 
of  the  Commission  been  virtually  set  aside  by  the 
Supreme  Court  of  the  United  States,  through  the 
effect  of  its  decision  in  another  matter  presently  to 
be  described. 

Supplementary  to  the  practice  of  discrimination 
in  favor  of  agricultural  exports,  a  scheme  of  discrim- 
^,   ^       .   .        ination  in  favor  of   imports  destined 

The  Commtsston  ^ 

versus  Phiiadei-  for  the  interior  of  the  country  had 
phia,  Baltimore  meanwhile  grown  up.  As  soon  as  the 
railways  leading  to  Philadelphia,  Balti- 
more and  ^Montreal  began  to  compete  strongly  for 
the  business  of  exporting  grain  to  Europe,  they  had 
to  induce  steamship  companies  in  some  special  way 
to  send  steamers  to  Philadelphia,  Baltimore  and 
Montreal  to  load  with  grain.  This  had  to  be  done 
because  it  was  difficult  to  find  cargoes  for  steamers 
on  their  way  to  the  cities  in  question,  which  had  little 
standing  as  importing  places.  The  railways  there- 
fore authorized  the  steamship  lines  to  take  freight 
from  Europe,  shipped  through  to  points  in  the  inte- 
rior of  the  United  States  by  way  of  the  cities  above 
mentioned,  at  any  rate  that  was  to  be  obtained,  they 

2,500,000,000  bushels  a  year.  Now  there  is  a  very  small  portion  of  that 
consumed  in  the  L'nited  States.  What  are  you  going  to  do  with  the 
surplus  ?  How  are  you  going  to  enable  the  farmer  to  sell  it  ?  The  rail- 
roads come  in  and  say :  '  We  will  help  you  to  do  this  ;  we  will  enable 
you  to  get  this  to  Liverpool  at  a  cheaper  rate  than  we  can  take  this  stuff 
to  New  York  City.'  Now  that  is  the  general  theory  on  which  we  do  this 
business.  Whether  it  is  right  or  wrong  I  do  not  know.  I  think  if  we 
were  to  stop  it  there  would  be  a  howl  from  the  West  that  we  would  not 
get  over  very  soon." 


THE   DECISIONS   OF  THE   COMMISSION  327 

themselves  agreeing  to  carry  the  freight  into  the  inte- 
rior at  a  certain  per  cent  of  that  total  rate*  Thus  in 
time  it  even  came  about  that  New  York  merchants 
occasionally  found  it  advantageous  to  have  their  im- 
ports sent  to  Chicago,  by  way  of  one  of  the  southern 
or  northern  ports,  and  thence  back  to  New  York. 
Again,  Chicago  importers,  such  as  Field,  Leiter  and 
Co.,  were  often  enabled  to  sell  goods  in  "New  York 
territory."  The  situation  no  doubt  annoyed  the 
merchants  of  New  York,  by  curtailing  both  at  home 
and  in  the  West  the  monopoly  of  trade  which  they 
had  long  enjoyed;  it  offended  also  the  American 
manufacturer,  for  it  neutralized  in  part  the  protective 
tariff.  But  to  the  American  people  as  a  whole  the 
practice  was  of  great  benefit,  for  it  promoted  pow- 
erfully the  development  of  Montreal,  Boston,  Phila- 
delphia and  Baltimore  as  ports  of  export  and  import. 
Subsequently  the  practice  of  discriminating  be- 
tween imported  goods  sent  from  Europe  on  through 
bills  of  lading  and  imported  goods  reshipped  at  the 
seaboard  or  domestic  goods  for  the  interior  manu- 
factured on  the  seaboard  was  extended  to  all  ports 
as  far  south  as  New  Orleans  and  Galveston.  This 
extension  was  due  to  the  necessity  of  meeting  water 
competition.  The  railways  leading  from  New  Or- 
leans to  St.  Louis,  Kansas  City,  Omaha  and  Denver 
had  to  meet  the  competition  of  the  barge  lines  on  the 
Mississippi  River,  if  they  wished  to  share  in  the  car- 

*  The  Railroad  Gazette,  November  14,  1879. 


328  RAILWAY   RATES 

riage  of  commodities  imported  from  Europe.  The 
Southern  Pacific  Railway  also  had  to  cut  rates  on 
imports  from  Europe,  if  it  wished  to  carry  them  over- 
land from  New  Orleans,  in  competition  with  the 
ocean  routes  by  way  of  Cape  Horn  and  the  Isthmus 
of  Panama.  The  articles  upon  which  the  railways 
thus  discriminated,  according  as  they  were  shipped 
from  the  Atlantic  seaboard  or  were  brought  as  through 
freight  from  Europe,  were  tea,  tin-plate,  soda  caustic, 
wines  and  liquors,  groceries  and  certain  articles  of 
general  merchandise.  The  transportation  business 
in  these  commodities  was  not  large,  but  it  was 
steadily  increasing  and  yielded  a  revenue  which 
was  a  material  aid  to  the  railways. 

In  March,  1889,  on  the  basis  of  the  evidence  in  a 
case  brought  before  it  by  seaboard  commercial  inter- 
ests, the  Interstate  Commerce  Commission  issued  an 
order  providing,  among  other  things,  that  "imported 
traffic  transported  to  any  place  in  the  United  States 
from  a  port  of  entry  or  place  of  reception,  ...  is 
required  to  be  taken  on  the  inland  tariff  governing 
other  freights  " — that  is,  governing  freights  originat- 
ing on  the  Atlantic  seaboard.  A  few  months  after- 
ward the  New  York  Board  of  Trade  and  Transporta- 
tion, the  Commercial  Exchange  of  Philadelphia  and 
the  San  Francisco  Chamber  of  Commerce  filed  a 
complaint  against  a  large  number  of  railways  for 
violating  the  Commission's  order.*    The  Commission 

*  The  Xew  York  Board  of  Trade  and  Transportation^  et  al.,  v.  The 
Pennsylvania  Railroad  Co.,  et  al.,  VoL  IV. 


THE   DECISIONS    OF   THE   COMMISSION  329 

accordingly  again  ordered  all  railways  to  desist  from 
discriminating  between  import  traffic  and  domestic 
traffic,  holding  that  neither  ocean  competition  nor 
any  other  circumstance  or  condition  which  existed 
beyond  the  seaboard  in  the  United  States  could 
justify  a  difference  in  rates  between  import  traffic 
and  domestic  traffic. 

The  whole  matter  was  finally  reviewed  in  a  case 
brought  on  appeal  before  the  highest  tribunal  in  the 
The  Supreme  \'^^^-  The  Supreme  Court  of  the 
Court  overrules  United  States,  in  Texas  Pacific  Rail- 
the  Commission      ^^^^  q^    ^^  j^^^  Interstate  Commerce 

Commission,^  held  that  the  Commission  had  erred 
in  not  taking  into  consideration  the  ocean  trans- 
portation as  constituting  a  "dissimilar  condition"  un- 
der the  Act,  and  in  holding  that  no  circumstances 
and  conditions  which  existed  beyond  the  seaboard 
in  the  United  States  could  be  legitimately  regarded 
by  them  (the  Commissioners)  for  the  purpose  of  jus- 
tifying a  difference  in  rates  between  import  and 
domestic  traffic. 

In  the  course  of  the  opinion,  from  which  Justice 
Harlan,  Justice  Brown  and  Chief  Justice  Fuller 
dissented,  the  Court  said:  "The  answer  of  the 
Texas  and  Pacific  Railway  Company  .  .  .  alleges: 
That  rates  for  the  transportation  of  commodities 
from  Liverpool  and  London  to  San  Francisco  are  in 
effect  fixed  and  controlled  by  the  competition  of  sail- 

*  United  States  Reports,  Vol.  162. 


330  RAILWAY   RATES 

ing  vessels  for  the  entire  distance;  by  steamships 
and  sailing  vessels  in  connection  with  railroads  across 
the  Isthmus  of  Panama;  by  steamships  and  sailing 
vessels  from  Europe  to  New  Orleans,  connecting 
there,  under  through  arrangements  with  the  Southern 
Pacific  Company,  to  San  Francisco.  That,  unless 
the  defendant  company  charges  substantially  the 
rates  specified  in  its  answer,  it  would  be  prevented, 
by  reason  of  the  competition  aforesaid,  from  engag- 
ing in  the  carrying  and  transportation  of  property 
and  import  traffic  from  London  and  Liverpool  to 
San  Francisco,  and  would  lose  the  revenue  derived 
by  it  therefrom,  which  is  considerable,  and  impor- 
tant and  valuable  to  said  company.  That  the  rates 
charged  by  it  are  not  to  the  prejudice  or  disadvantage 
of  New  Orleans,  and  work  no  injury  to  that  com- 
munity, because,  if  said  company  is  prevented  from 
participating  in  said  traffic,  such  traffic  would  move 
via  the  other  routes  and  lines  aforesaid  without  bene- 
fit to  New  Orleans,  but,  on  the  contrary,  to  its  disad- 
vantage. That  the  foreign  or  import  traffic  is  upon 
orders  by  persons,  firms  and  corporations  in  San 
Francisco,  buying  direct  of  first  hands  in  London, 
and  other  European  markets;  and,  if  the  order  of 
the  Commission  should  be  carried  into  effect,  it  would 
not  result  in  discontinuance  of  that  practice  or  in 
inducing  them  to  buy  in  New  Orleans  in  any  event. 
That  the  result  of  the  order  would  be  to  injuriously 
affect  the  defendant  company  in  the  carriage  of  arti- 


THE   DECISIONS   OF   THE   COMMISSION  331 

cles  of  foreign  imports  to  Memphis,  St.  Louis,  Kansas 
City  and  other  Missouri  River  points.  That  by 
such  order  the  defendant  company  would  be  pre- 
vented from  competing  for  freight  to  important 
points  in  the  State  of  Texas  with  the  railroad  system 
of  that  State,  having  Galveston  as  a  receiving  port, 
.  .  .  These  allegations  of  the  answer  were  not 
traversed  or  denied  by  the  Commission,  but  are  con- 
firmed by  the  findings  of  the  Commission  .  .  .  ; 
and  by  said  findings  it  further  appears  that  the  pro- 
portion the  Texas  Pacific  receives  of  the  through  rate 
is  remunerative;  that  the  preponderance  of  empty 
cars  go  north  during  eight  months  of  the  year,  and 
if  something  can  be  obtained  to  load,  it  is  that  much 
found,  and  anything  is  regarded  as  remunerative 
that  can  be  obtained  to  put  in  its  cars  to  pay  mileage ; 
that  the  competition  which  controls  the  making  of 
rates  to  the  Pacific  coast  is  steamship  by  way  of  the 
Isthmus  and  in  cheap,  heavy  goods  around  Cape 
Horn;  that  the  competition  to  interior  points,  such 
as  Missouri  River  points  and  Denver,  is  from  the 
trunk  lines  direct  from  the  Atlantic  seaboard;  that 
the  through  bill  of  lading  furnishes  a  collateral  for  the 
transaction  of  business,  takes  from  the  shipper  and 
consignee  both  the  care  as  to  intermediate  charges, 
elevators,  wharves  and  cost  of  handling,  and  puts 
it  on  the  carrier,  reduces  the  intermediate  charges, 
very  much  facilitates  the  transaction  of  business,  and 
helps  to  swell  its  volume;   that  the  tendency  of  the 


332  RAILWAY   RATES 

through  bill  of  lading  is  to  eliminate  the  obstacles 
between  the  producer  and  consumer,  and  it  has  done 
much  in  that  direction. 

"These  and  other  uncontro verted  facts  that  appear 
in  this  record  would  seem  to  constitute  '  circumstances 
and  conditions '  worthy  of  consideration  when  carriers 
are  charged  with  being  guilty  of  unjust  discrimination, 
or  of  giving  unreasonable  and  undue  preference  or 
advantage  to  any  person  or  locality.  .  .  . 

**As  we  have  already  said,  it  could  not  be  supposed 
that  Congress,  in  regulating  commerce,  would  intend 
Congress  did  not  to  forbid  or  destroy  an  existing 
intend  to  throttle  branch  of  Commerce,  of  value  to  the 
"^^^^^  common  carriers  and  to  the  consumers 

within  the  United  States.  Clearly,  express  language 
must  be  used  in  the  act  to  justify  such  a  supposi- 
tion. 

''So  far  from  finding  such  language,  we  read  the 
act  in  question  to  direct  the  Commission,  when  asked 
to  find  a  common  carrier  guilty  of  a  disregard  of 
the  act,  to  take  into  consideration  all  the  facts  of  the 
given  case,  among  which  are  to  be  considered  the 
welfare  and  advantage  of  the  common  carrier,  and 
of  the  great  body  of  the  citizens  of  the  United  States, 
who  constitute  the  consumers  and  the  recipients  of 
the  merchandise  carried,  and  that  the  attention  of  the 
Commission  is  not  to  be  confined  to  the  advantage 
of  shippers  and  merchants  who  deal  at  or  near  the 
ports  of  the  United  States,  in  articles  of  domestic 


THE   DECISIONS   OF   THE   COMMISSION  333 

production.  Undoubtedly  the  latter  are  likewise 
entitled  to  be  considered;  but  we  cannot  concede 
that  the  Commission  is  shut  up,  by  the  terms  of  the 
act,  to  solely  regard  the  complaints  of  one  class  of 
the  community.  We  think  that  Congress  has  here 
pointed  out  that  in  considering  questions  of  this  sort 
the  Commission  is  not  only  to  consider  the  wishes 
and  interests  of  the  shippers  and  merchants  of  large 
cities,  but  to  consider  also  the  desire  and  advantage 
of  the  carriers  in  securing  special  forms  of  traffic,  and 
the  interest  of  the  public  that  the  carriers  should 
secure  that  traffic,  rather  than  abandon  it  or  not 
attempt  to  secure  it.  .  .  . 

"Moreover,  it  must  not  be  overlooked  that  this 
legislation  is  experimental.  Even  in  construing  the 
terms  of  a  statute,  courts  must  take  notice  of  the  his- 
tory of  legislation,  and,  out  of  different  possible  con- 
structions, select  and  apply  the  one  that  best  comports 
with  the  genius  of  our  institutions,  and  therefore  most 
likely  to  have  been  the  construction  intended  by  the 
lawmaking  power.  Commerce,  in  its  largest  sense, 
must  be  deemed  to  be  one  of  the  most  important  sub- 
jects of  legislation ;  and  an  intention  to  promote  and 
facilitate  it,  and  not  to  hamper  or  destroy  it,  is  natu- 
rally to  be  attributed  to  Congress.  The  very  terms  of 
the  statute,  that  charges  must  be  'reasonable,'  that 
discrimination  must  not  be  '  unjust '  and  that  prefer- 
ence or  advantage  to  any  particular  person,  firm, 
corporation  or  locality  must  not  be  'undue'  or  'un- 


334  RAILWAY  RATES 

reasonable,'  necessarily  imply  that  strict  uniformity 
is  not  to  be  enforced,  but  that  all  circumstances  and 
conditions  which  reasonable  men  would  regard  as 
affecting  the  welfare  of  the  carr^ang  companies,  and 
of  the  producers,  shippers  and  consumers,  should  be 
considered  by  a  tribunal  appointed  to  carry  into  effect 
and  enforce  the  provisions  of  the  act.  .  .  . 

''The  conclusions  that  we  draw  from  the  history 
and  language  of  the  act,  and  from  the  decisions  of 
our  own  and  the  English  courts,  are  mainly  these: 
That  the  purpose  of  the  act  is  to  promote  and  facili- 
tate commerce,  by  the  adoption  of  regulations  to 
make  charges  for  transportation  just  and  reasonable, 
.  .  .  that,  in  passing  upon  questions  arising  under 
the  act,  the  tribunal  appointed  to  enforce  its  provi- 
sions, whether  the  Commission  or  the  courts,  is  em- 
powered to  fully  consider  all  the  circumstances  and 
conditions  that  reasonably  apply  to  the  situation,  and 
that  in  the  exercise  of  its  jurisdiction  the  tribunal 
may  and  should  consider  the  legitimate  interests  as 
well  of  the  carrying  companies  as  of  the  traders  and 
shippers,  and,  in  considering  whether  any  particular 
locality  is  subjected  to  an  undue  preference  or  dis- 
advantage, the  welfare  of  the  communities  occupying 
the  localities  where  the  goods  are  to  be  delivered  is 
to  be  considered,  as  well  as  that  of  the  communities 
which  are  in  the  locality  of  the  place  of  shipment; 
that  among  the  circumstances  and  conditions  to  be 
considered,  as  well  in  the  case. of  traffic  originating 


THE   DECISIONS   OF  THE  COMMISSION  335 

in  foreign  ports  as  in  the  case  of  traffic  originating 
within  the  limits  of  the  United  States,  competition 
that  affects  rates  should  be  considered,  and  in  decid- 
ing whether  rates  and  charges  made  at  a  low  rate  to 
secure  foreign  freights,  which  would  otherwise  go  by 
competitive  routes,  are  or  are  not  undue  and  unjust, 
the  fair  interests  of  the  carrier  companies  and  the 
welfare  of  the  community  which  is  to  receive  and  con- 
sume the  commodities  are  to  be  considered;  that 
if  the  Commission,  instead  of  confining  its  action  to 
redressing,  on  complaint  made  by  some  particular 
firm,  corporation  or  locality,  some  specific  disregard 
by  common  carriers  of  provisions  of  the  act,  pro- 
poses to  promulgate  general  orders,  which  thereby 
become  rules  of  action  to  the  carrying  companies, 
the  spirit  and  letter  of  the  act  require  that  such 
orders  should  have  in  view  the  purpose  of  promoting 
and  facilitating  commerce,  and  the  welfare  of  all  to  be 
affected,  as  well  the  carriers  as  the  traders  and  con- 
sumers of  the  country. 

''It  may  be  said  that  it  would  be  impossible  for  the 
Commission  to  frame  a  general  order  if  it  were  neces- 
The  Commission's  ^^ry  to  enter  so  wide  a  field  of  investi- 
Order  in  Effect  a  gation,  and  if  all  interests  that  are 
Law  of  Wide  im-  liable  to  be  affected  were  to  be  consid- 
ered.  This  criticism,  if  well  founded, 
would  go  to  show  that  such  orders  are  instances  of  gen- 
eral legislation,  requiring  an  exercise  of  the  law-making 
power,  and  that  the  general  orders  made  by  the  Com- 


33G  RAILWAY  RATES 

mission  in  March,  1889,  and  January,  1891,  instead 
of  being  regulations  calculated  to  promote  and  en- 
force the  express  provisions  of  the  Act,  are  themselves 
laws  of  wide  import,  destroying  some  branches  of 
commerce  that  have  long  existed,  and  undertaking  to 
change  the  laws  and  customs  of  transportation  in  the 
promotion  of  what  is  supposed  to  be  public  policy. 

"This  is  manifest  from  the  facts  furnished  us  in 
the  reports  and  findings  of  the  Commission. 

"It  is  stated  in  that  report  that  the  Illinois  Central 
Railway  Co.  averred  in  its  answer  that  it  was  con- 
strained by  its  obedience  to  the  order  of  March, 
1889,  to  decline  to  take  for  shipment  any  import 
traffic,  and,  to  its  great  detriment,  to  refrain  from  the 
business,  for  the  reason  that  to  meet  the  action  of 
competing  lines,  it  would  have  to  make  a  less  rate  on 
the  import  traffic  than  on  the  domestic. 

"Upon  this  disclosure  that  their  order  had  resulted 
in  depriving  that  company  of  a  valuable  part  of  its 
traffic  (to  say  nothing  of  its  necessary  effect  in  in- 
creasing the  charges  to  be  finally  paid  by  the  con- 
sumers), the  Commission  in  its  report  naively  remarks : 
'This  lets  the  Illinois  Central  Railway  Co.  out.' 

"We  also  learn  from  the  same  source  that  there 
was  competent  evidence  adduced  before  the  Com- 
mission, on  the  part  of  the  Pennsylvania  Railroad 
Co.,  that  that  company's  compliance  with  the  order 
of  the  Commission  had  resulted  in  a  considerable 
falling  of  traffic;   that   the   steamships   had   never 


THE   DECISIONS  OF  THE  COMMISSION         337 

assented  to  the  Pennsylvania  charging  its  full  inland 
rates  (on  import  traffic);  that  if  it  were  definitely 
determined  that  the  road  was  not  at  liberty  to  charge 
less  than  the  full  inland  rate,  the  result  would  be  that 
it  would  effectually  close  every  steamship  line  sailing 
to  and  from  Baltimore  and  Philadelphia."  At  this 
time  the  imports  at  Baltimore  aggregated  about 
$15,000,000  a  year,  whereas  the  exports  aggregated 
$51,000,000. 

Very  nearly  every  important  decision  in  which  the 
Interstate  Commerce  Commission  has  condemned  an 
American  rate  practice  is  open  to  this  criticism  made 
by  the  Supreme  Court  in  the  case  under  review  — 
that  the  Commission  arrived  at  its  decision  by  ignor- 
ing the  rights  of  all  the  parties  to  the  controversy 
excepting  the  complainant.  And  that  criticism  is 
fatal ;  for  in  most  of  the  cases  brought  before  the  Com- 
mission the  conflict  has  not  been  between  the  rail- 
ways and  the  people,  but  between  one  section  of  the 
public  and  another  section  of  the  public,  each  such 
section  being  served  by  its  particular  railway  or  rail- 
ways. 

In  obedience  to  a  resolution  of  the  Senate  of  the 
United  States,  the  Interstate  Commerce  Commis- 
sion,* early  in  1903,  inquired  into  the  matter  of  the 
rates  on  import  and  domestic  traffic.  Upon  that 
occasion  the  Commission  asked  Mr.  Tuttle,  President 

*  Reports  and  Decisions  of  the  Interstate  Commerce  Commission,  VoL 
IX,  In  the  Matter  of  Raits  on  Import  and  Domestic  Traffic. 


338  RAILWAY   RATES 

of  the  Boston  and  Maine  Railroad,  what  effect  it 
would  have  upon  the  port  of  Boston  if  Congress 
should  enact  a  law  providing  that  import  and  domes- 
tic rates  from  ports  of  entry  in  the  United  States  to 
interior  points  of  destination  should  be  the  same? 
The  witness  replied,  ''I  think,  in  that  event,  Boston 
would  ultimately  have  little  use  for  its  export  wharves, 
and  might  finally  turn  them  into  vegetable  gardens." 
^Ir.  Tuttle  added :  "  Our  outgoing  natural  products 
require  steamer  space  greatly  in  excess  of  the  incoming 
quantities  of  foreign  goods,  and  it  becomes  therefore 
a  commercial  necessity  that  every  transportation  line 
leading  from  each  port  of  entry  to  the  interior  of  this 
country  do  everything  in  its  power  to  encourage  the 
growth  of  import  business,  even  to  the  extent,  in 
emergencies,  of  joining  in  through  import  rates  which 
are  of  themselves  profitless.  ...  If  we  are  to  sell 
our  goods  in  the  markets  of  the  world,  we  must 
furnish  export  transportation  to  those  markets;  we 
must  supply  traffic  to  ocean  lines  from  the  ports  of  the 
United  States  to  the  ports  of  Europe.  If  our  laws 
or  the  custom  of  our  railroads,  either  by  onerous  cus- 
toms duties  and  regulations  or  by  excessive  freight 
tariffs  or  by  both,  make  it  impossible  to  buy  goods  in 
foreign  markets  and  resell  them  in  our  markets,  then 
we  shall  have  no  import  business ;  and  if  we  have  no 
import  business  with  which  to  fill  the  cargo-carrying 
capacity  of  our  inbound  trans-Atlantic  ships,  then  a 
higher  rate  must  be  levied  by  them  on  the  outbound 


THE   DECISIONS   OF   THE   COMMISSION  339 

traffic,  or  they  will  become  profitless  and  be  of  neces- 
sity discontinued,  and  our  export  traffic  and  the  sale 
of  our  products  abroad  will  likewise  be  proportion- 
ately discontinued.  ...  I  think  Congress  and  the 
people  at  large  should  be  brought  to  comprehend 
that  no  matter  how  much  this  intricate  problem  of 
adjusting  the  relations  of  import  and  domestic  freight 
rates  may  seem,  for  the  moment,  to  have  narrowed 
itself  to  one  of  competition  between  the  seaports  and 
transportation  lines,  there  is  involved  in  it  the  inesti- 
mably larger  and  more  important  question  whether 
our  great  railway  system  shall  have  continued  freedom 
to  extend  and  develop  our  foreign  commerce,  so  that 
the  United  States  shall  ultimately  become  a  more 
extensive  seller  of  its  manufactured  as  well  as  of  its 
natural  and  food  products  in  all  the  great  marts  of 
the  world's  trade,  or  shall  retrace  its  steps  in  the  path 
of  international  progress  upon  which  it  has  so  profit- 
ably and  prosperously  entered,  and  erect  a  Chinese 
wall  along  its  seacoasts,  so  that  nothing  produced 
abroad  shall  ever  come  in,  with  the  inevitably  re- 
sultant corollary  that  nothing  but  such  of  our  food 
products,  as  the  rest  of  the  world  absolutely  needs 
shall  hereafter  go  out." 

In  connection  with  the  concluding  words  of  this 
quotation  it  should  be  borne  in  mind  that  in  the  near 
future  the  Argentine  wheat  is  destined  to  become  a 
much  more  formidable  competitor  in  Liverpool  of 
American  wheat,  and  that  every  factor  that  shall 


340  RAILWAY  RATES 

arrest  the  decline  in  the  cost  of  moving  American 
wheat  from  the  farm  to  Liverpool  will  redound  to 
the  advantage  of  the  Argentine  wheat  in  the  coming 
struggle.  ' 

Another  witness,  the  representative  of  one  of  the 
leading  trunk  lines,  stated  that  the  practice  under  re- 
Hmv  the  Gulf  ^iew  had  bccome  an  important  agency 
Ports  are  being  in  developing  Brunswick  and  Savan- 
buiitup  j^^j^^  Q^^   Charleston,  S.C,  MobHe, 

Ala.,  Galveston  and  Sabine,  Tex.,  and  New  Or- 
leans into  more  effective  competitors  for  the  export 
and  import  trade  of  the  Mississippi  Valley  and  the 
trans-Mississippi  territory.  He  said:  "When  you 
take  heavy  traffic,  if  a  man  is  not  in  a  hurry,  and  fre- 
quently he  is  not,  1 2  cents  a  ton  —  I  mean  to  say 
12  cents  a  ton  on  the  total  cost  of  carriage;  that  in- 
cludes your  insurance  as  well  —  12  cents  a  ton  will 
turn  that  traffic  (from  one  port  to  another)  whether 
it  is  going  to  Chicago  or  to  San  Francisco."  He 
added  that  the  traffic  covered  crockery,  cement,  salt, 
plate  glass  and  similar  articles,  which  were  so  desir- 
able as  ballast  that  vessels  sometimes  carried  them 
free,  and  had  even  at  times  paid  for  the  privilege  of 
carr}'ing  them. 

At  the  hearing  which  the  Commission  held  in  New 
York,  the  manager  of  the  Vulcanite  Portland  Cement 
Co.,  of  Vulcanite,  N.  J.,  complained  that  the  discrimi- 
nation in  favor  of  cement  imported  on  through  bills 
of  lading  often  entirely  offset  the  customs  duty  on 


THE   DECISIONS  OF  THE  COMMISSION         341 

cement ;  at  the  hearing  in  Washington  a  representa- 
tive of  the  Pittsburg  Plate  Glass  Co.  made  a  similar 
complaint ;  and  at  the  hearing  in  Chicago  the  general 
freight  agent  of  the  Illinois  Central  Railroad  Co. 
showed  that  salt  had  often  been  shipped  from  Liver- 
pool through  New  Orleans  to  Chicago  for  a  charge 
less  than  that  made  on  domestic  salt  from  New 
Orleans  to  Chicago. 

Had  the  Interstate  Commerce  Commission  been 
permitted  to  stop  the  practice  of  discriminating  in 
favor  of  commodities  imported  on  through  bills  of 
lading,  the  American  manufacturers  of  crockery,  cem- 
ent and  plate  glass  would  have  one  grievance  less; 
but  Boston,  Philadelphia,  Baltimore,  Newport  News 
and  New  Orleans  would  be  but  feeble  competitors  of 
New  York,  while  Brunswick,  Charleston,  Savannah, 
Mobile  and  Galveston  would  be  little  more  than 
names  on  the  map.  Furthermore,  every  producer 
and  consumer  in  the  interior  of  the  United  States 
would  be  less  well  off  than  he  is ;  for  the  rivalry  of  the 
competing  ports,  each  served  by  its  line  or  lines  of 
railway,  has  been  the  most  important  factor  not  only 
in  reducing  railway  rates,  but  also  in  reducing  the 
commissions  and  the  warehouse  charges  made  by  the 
exporters  of  our  farm  products  and  the  importers  of 
the  articles  of  foreign  origin  consumed  by  the  people 
of  the  United  States.  Since  the  railways  leading 
from  the  trans-Mississippi  territory  to  the  Gulf  ports 
have  become  effective  competitors  for  the  carriage  of 


342  RAILWAY   RATES 

grain  for  export,  the  difference  between  the  price  of 
grain  on  the  American  farm  and  the  price  of  grain 
in  Liverpool  has  been  materially  reduced  —  to  the 
advantage  of  the  American  farmer* 

In  1899  the  Interstate  Commerce  Commission  f 
once  more  investigated  the  relative  rates  on  grain  for 
The  Commission  domestic  usc  and  grain  for  export, 
versus  the  West-  This  time  it  responded  to  certain  reso- 
ernFarfner  i^sX^^is  of  the  Chicago  Board  of 
Trade,  passed  in  the  interest  of  the  Chicago  com- 
mission merchants,  who  were  middlemen  between 
the  American  farmer  and  the  European  consumer, 
and  were  being  crowded  out  through  the  economies 
and  railway-rate  practices  which  the  railways  leading 
to  the  Atlantic  seaboard  by  way  of  Chicago  had 
adopted,  in  order  to  meet  the  competition  of  the  rail- 
ways leading  to  the  Gulf  ports.  J  Those  economies 
and  railway-rate  practices  have  been  described  at 
length  in  a  preceding  chapter. 

The  Interstate  Commerce  Commission  said: 
".  .  .  Conditions  may  [at  times]  justify  the  existence 
of  a  lower  rate  for  export  than  for  domestic  use,  but 
in  the  absence  of  such  conditions  we  cannot  concur 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products,  pp.  7-10  and  70-77  ;  and  Report  of  the  Industrial  Commission 
on  Agriculture  and  Agricultural  Labor,  pp.  295—300. 

t  Interstate  Commerce  Commission  Reports,  Vol.  VIII,  In  the  Matter 
of  Export  Rates  from  Points  East  and  IVest  of  the  Mississippi  River,  and 
In  the  Matter  of  Relative  Rates  upon  Export  and  Domestic  Traffic  in 
Grain  and  Grain  Products  and  of  the  Publication  of  Tariffs  relating  to 
Such  Traffic. 

X  The  Railroad  Gazette,  January  27,  August  18  and  September  8, 
1899. 


THE  DECISIONS   OF  THE   COMMISSION         343 

in  the  idea  that  any  permanent  system  of  rates  which 
renders  a  service  for  the  foreigner  at  a  less  price 
than  is  paid  by  the  American  can  be  just  to 
the  American;  nor  would  we  permit  the  continu- 
ance of  such  a  system  if  we  had  the  power  to  prevent 
it."  The  Commission  a  moment  before  had  stated 
that,  under  the  ruling  of  the  Supreme  Court  in  Texas 
and  Pacific  Railroad  v.  Interstate  Commerce  Com- 
mission,"^ it  was  constrained  to  hold  that,  as  a  matter 
of  law,  the  Act  to  Regulate  Commerce  did  not  pro- 
hibit every  discrimination  between  freight  carried 
for  export  and  freight  carried  for  domestic  use,  but 
only  unjust  discrimination.  It  now  went  on  to  say: 
"...  The  question  for  our  consideration  is  there- 
fore one  of  fact,  and  seems  to  be,  upon  this  branch  of 
the  case,  whether  the  present  adjustment  of  export 
and  domestic  rates  discriminates  against  the  domestic 
consumer  in  favor  of  the  foreign  consumer.  What 
reason  is  there  why  the  foreigner  who  eats  our  wheat 
should  have  it  transported  from  the  Mississippi 
River  to  New  York  for  12  cents  a  hundred  pounds, 
while  the  American  is  obliged  to  pay  19.5  cents  for 
the  same  service. 

"The  Supreme  Court  in  the  Import  Rate  Case  has 
laid  down  the  rule  which  should  guide  the  Commission 
in  the  determination  of  that  question.  It  is  not  every 
discrimination  which  is  forbidden  by  the  Act  to  Reg- 
ulate   Commerce,  but    only  unjust    discrimination; 

*  United  States  Reports,  Vol.  162. 


344  RAILWAY  RATES 

and  the  court  holds  that,  in  determining  whether  a 
discrimination  is  in  fact  unjustifiable,  the  interests 
of  all  parties  involved  must  be  considered.  The 
parties  involved  in  this  case  are  the  producer  of  grain, 
the  domestic  consumer  and  the  inland  carrier;  we 
are  not  concerned  with  the  foreign  consumer." 

By  means  of  erroneous  reasoning,  reviewed  at 
length  in  a  previous  chapter,  the  Commission  next 
arrived  at  the  conclusion:  " That  the  American  pro- 
ducer has  derived  no  substantial  benefit  from  these 
rates ;  that  the  American  carrier  has  lost  enormously 
by  them  and  that  the  foreigner  alone  has  had  the 
benefit  of  them.  ...  It  is  impossible  more 
strongly  to  emphasize  the  folly  of  the  whole  proceed- 
ing than  by  the  mere  statement  of  it.  .  .  .  There 
are  perhaps  two  kinds  of  injury  which  follow  from  the 
maladjustment  of  freight  rates.  One  is,  so  to  speak, 
an  indirect  injury  to  the  community  as  a  whole; 
the  other  a  direct  injury  to  some  particular  individual 
or  industry.  The  Act  to  Regulate  Commerce  was 
undoubtedly  intended  to  cover  both  classes;  still, 
it  is  the  direct  injury  which  appeals  more  strongly 
to  the  sense  of  right  and  wrong,  and  demands  more 
loudly  some  immediate  redress.  In  this  case  it 
would  not  be  right,  in  the  absence  of  some  justifying 
reason,  for  American  railroads  to  permanently  trans- 
act business  for  foreigners  at  a  less  rate  than  that  for 
which  they  render  a  corresponding  service  to  Ameri- 
can citizens.     Such  a  course  is  wrong  nevertheless  ij 


THE   DECISIONS   OF   THE   COMMISSION  345 

no  individual  and  no  community  can  say  it  is  injured 
and  point  out  the  extent  of  that  injury.  No  such  per- 
manent condition  should  be  tolerated.  If  such  a 
condition  had  become  or  were  likely  to  become  per- 
manent, we  should  deem  it  our  duty  to  attempt  some 
redress.  The  testimony  in  this  case  indicates  that 
such  is  not  the  case.  The  carriers  recognize  the  fact 
that  these  export  rates  are  altogether  too  low  in  pro- 
portion to  domestic  rates.  They  are  the  chief  losers 
by  the  course  now  adopted.  That  course  is  the  re- 
sult of  competitive  conditions  which  in  the  end  will 
probably  work  out  some  rational  basis  upon  which 
this  traffic  is  to  be  handled." 

In  1895  the  farmers  of  the  United  States  increased 
the  area  under  corn  by  19,500,000  acres,  or  31  per  cent. 

^'- Theories  of  So-  ^^  ^^97  ^^^  ^^9^  ^^^  increased 
cial Progress''  the  area  under  wheat  by  9,500,000 
versus  Conditions  acres,  or  27  per  Cent.     For  a  large  part 

and  Facts  ,.    .-,  j. 

of  the  enormous  crops  correspondmg 
to  these  figures  it  was  necessary  to  find  a  market 
abroad.  In  the  period  1890-95  the  United  States  had 
exported  59,000,000  bushels  of  corn  a  year,  or  ;i,.;3,  per 
cent  of  its  corn  crop ;  in  the  period  from  1896  to  1901 
those  figures  became  respectively  177,000,000  bushels, 
and  8.6  per  cent.  The  exports  of  wheat  increased 
from  an  annual  average  of  145,000,000  bushels  in 
1893-96  to  an  annual  average  of  210,000,000  in 
1 89  7-1 900.  It  is  obvious  that  these  enormously 
augmented  quantities  of  grain  could  not  be  thrown 


346  RAILWAY  RATES 

upon  the  Liverpool  market  without  breaking  the 
price.  It  was  therefore  a  most  happy  combination 
of  circumstances  that  in  the  period  from  1896  to 
1900,  and  especially  in  1899  and  1900,  our  export 
rates  on  grain  were  exceptionally  low,  because  of 
the  competition  between  the  railways  leading  from 
the  West  to  the  Gulf  and  to  the  Atlantic  seaboard 
respectively. 

The  farm  price  of  wheat  broke  in  1898  and 
the  subsequent  years,  but  it  did  not  fall  to  the 
low  level  of  1893-95  —  thanks,  in  part,  to  the  great 
reduction  in  the  charge  made  for  moving  the 
wheat  from  the  farm  in  America  to  the  market  in 
Liverpool.  Of  these  facts  the  Interstate  Commerce 
Commission  took  no  cognizance ;  indeed,  in  all  proba- 
bility it  never  occurred  to  the  Commission  to  inquire 
into  the  realm  of  facts  here  indicated.  One  of  the 
most  characteristic  things  about  the  Interstate  Com- 
merce Commission  has  been  that  it  has  repeatedly 
condemned  great  American  rate  practices  without 
adequate  inquiry  into  the  part  played  by  those  prac- 
tices in  the  development  of  the  resources,  the  trade 
and  the  industry  of  our  country.  It  has  rendered 
decisions  and  issued  orders  that  in  effect  were  na- 
tional acts  of  legislation,  and  that  would  have  de- 
stroyed great  branches  of  established  trade,  when 
those  decisions  and  orders  were  founded  on  nothing 
more  than  some  fantastic  theory  invented  for  the 
occasion  and  in  conflict  with  the  established  law  of 


THE   DECISIONS  OF  THE   COMMISSION  347 

our  country  and  the  genius  of  our  institutions.  Such 
a  theory  was  the  one  that  the  policy  of  protection  to 
our  infant  industries  forbade  the  railways  discrim- 
inating permanently  in  favor  of  agricultural  products 
carried  for  export,  lest  the  foreign  manufacturer  be 
given  an  undue  advantage  over  the  American  manu- 
facturer. Another  such  theory  was  the  one  that  a 
rate  practice  might  be  unlawful,  though  no  individual 
and  no  community  could  say  it  was  injured  by  it  and 
point  out  the  extent  of  that  injury. 

It  is  for  this  reason  that  the  Supreme  Court  of 
the  United  States  has  reversed  the  decisions  of  the 
Interstate  Commerce  Commission  time  and  again 
upon  questions  of  law  and  upon  questions  of  fact, 
and  has  taken  occasion  to  express  emphatically  its 
disapproval  of  the  economic  policy  that  has  under- 
lain the  decisions  of  the  Commission.  The  Interstate 
Commerce  Commission  has  sought  to  construe  the 
Act  to  Regulate  Commerce  and  to  estimate  the  evi- 
dence as  to  questions  of  fact  arising  in  cases  involving 
that  Act  under  the  guidance  of  what  it  has  been 
pleased  to  term  ''theories  of  social  progress"  — 
theories  which  were  neither  a  part  of  the  established 
law  of  the  land  nor  in  conformity  with  the  genius  of 
our  institutions.  The  Supreme  Court,  on  the  other 
hand,  has  held  that  the  Act  to  Regulate  Commerce 
must  be  construed  in  conformity  to  the  established 
law,  and  that  the  evidence  adduced  for  the  determina- 
tion of  questions  of  fact  arising  under  the  Act  must 


348  RAILWAY  RATES 

be  estimated  and  weighed  in  the  spirit  of  the  law  of 
the  land.  That  is  why  the  Supreme  Court  has  over- 
ruled the  Commission  on  questions  of  law,  as  well  as 
on  questions  of  fact. 

In  conclusion,  it  will  not  be  amiss  to  add  that 
discriminating  rates  in  favor  of  traffic  carried  for 
export  were  an  important  aid  to  the  men  who  in- 
creased our  exports  of  iron  and  steel  from  57,000 
tons  in  1896  to  281,000  tons  in  1897,  to  469,000  tons 
in  1898  and  to  578,000  tons  in  1899;  that  they  are 
at  the  present  moment  an  important  aid  to  the  manu- 
facturers of  Pennsylvania  and  the  cotton  manufac- 
turers of  New  England,  who  compete  in  the  Orient, 
with  the  aid  of  our  transcontinental  railways,  with 
the  manufacturers  of  England,  Belgium  and  Ger- 
many, who  ship  by  way  of  the  Suez  Canal;  that 
they  are  an  important  aid  to  the  California  fruit- 
grower who  ships  fruit  to  Europe  by  way  of  the 
Atlantic  ports;  and  that  they  are  an  important  aid 
to  the  lumber  and  planing  mills  at  the  Southwest 
which  ship  window  sashes,  doors,  etc.,  to  Scotland 
and  England. 


CHAPTER  VI 

THE  DECISIONS   OF   THE   INTERSTATE   COMMERCE 
COMMISSION    (continued) 

The  Long-  and  Short-haul  Clause 

Let  us  consider  next  the  Interstate  Commerce 
Commission's  condemnation  of  another  great  Ameri- 
can rate  practice:  the  so-called  competitive-point, 
or  basing-point,  system.  As  that  system  has  been 
described  in  a  preceding  chapter,  it  will  suffice 
to  add  that  it  was  admirably  adapted  to  the 
needs  of  the  United  States  —  a  virgin  country  with 
a  sparse  population  and  a  limited  supply  of  capital, 
whose  several  sections  differed  enormously  in  resources 
and  in  capacity  for  development.  Obviously  it  was 
good  public  policy  to  apply  our  limited  population 
and  capital  to  the  development  of  those  resources, 
regions  and  cities  which  promised  to  respond  most 
quickly  to  efforts  at  development.  It  was  sound 
policy  to  discriminate,  to  develop  first  our  most  prom- 
ising fields ;  and  as  these  became  exhausted,  and  the 
supply  of  labor  and  capital  increased,  to  turn  to  the 
development  of  the  less  promising  fields.     That  was 

349 


350  RAILWAY  RATES 

why  we  began  as  an  agricultural  and  pastoral  people ; 
then  turned  to  the  cruder  kinds  of  manufacturing, 
such  as  the  manufacture  of  lumber  and  pig  iron ;  then 
turned  to  the  manufacture  of  the  coarser  cotton  and 
woollen  cloths;  and  finally,  to  the  manufacture  of 
silks. 

The  railways  pursued  the  same  course :  they  de- 
veloped first  the  most  promising  resources,  the  most 
promising  cities;  and  then  they  turned  to  the  less 
promising  ones  —  that  is,  they  discriminated.  The 
intelligence  which  our  railways  exercised  in  that  dis- 
crimination, the  imagination  which  they  displayed 
in  discovering  resources  and  possibilities  of  trade,  and 
the  courage  and  energy  with  which  they  acted  upon 
their  discoveries  have  been  their  distinguishing  char- 
acteristics. In  these  matters  the  railways  cooperated 
with  the  American  people,  promoting  their  immediate 
as  well  as  their  permanent  interests ;  they  did  not  go 
counter  to  the  people's  interests,  temporary  or  per- 
manent. The  policy  of  the  railways  in  making  rates 
was  not  governed  by  a  fixed  rule,  such  as  a  distance 
tariff ;  the  rates  were  made  as  occasion  arose,  and  so 
as  to  meet  the  needs  of  the  occasion ;  they  manifested 
but  one  overruling  principle  —  the  development  of 
industry  and  trade  wherever  such  development  was 
practicable.  In  this  way  the  railways  have  developed 
trade  between  the  most  distant  parts  of  the  United 
States,  until  they  have  made  our  country  ''one  in  its 
business  enterprises  and  a  unit  in  its  business  activi- 


THE  DECISIONS   OF  THE   COMMISSION  351 

ties,"  and  have  carried  the  utilization  of  its  resources 
to  such  a  pitch  as  to  make  it  to  Europe  a  source  of 
wonder  and  despair. 

When  one  of  the  most  important  rate  practices  by 
means  of  which  our  railways  accomplished  these 
things,  the  competitive-point  or  basing-point  system, 
was  brought  before  the  Interstate  Commerce  Com- 
mission, that  body  condemned  it  in  all  instances  ex- 
cepting those  in  which  could  be  proved  the  presence 
of  actual  water  competition  or  the  competition  of  a 
Canadian  railway.  It  refused  to  exercise  the  power 
of  discretion  which  the  so-called  long-  and  short-haul 
clause  of  the  Act  to  Regulate  Commerce  had  be- 
stowed upon  it.  It  developed  the  doctrine  that  railway 
rates  may  not  be  adjusted  to  each  other  on  ''com- 
mercial considerations,"  but  that  such  adjustments 
must  conform  strictly  to  differences  in  the  costs  of  the 
services  for  which  the  respective  rates  were  made. 
In  conformity  with  that  doctrine  it  interpreted  the 
so-called  long-  and  short-haul  clause  and  estimated 
the  evidence  adduced  in  connection  with  questions 
of  fact  arising  under  that  clause.  The  Supreme  Court, 
however,  could  find  no  warrant  for  that  doctrine  in 
the  established  law  of  the  land  or  in  the  genius  of 
our  institutions,  and  therefore  it  reversed  the  de- 
cisions of  the  Commission  on  questions  of  law  and 
questions  of  fact. 

Shortly  after  the  Interstate  Commerce  Commission 
had  been  appointed,  it  considered,  upon  the  petition 


362  RAILWAY   RATES 

of  the  Vermont  State  Grange  of  the  Patrons  of 
The  Commission  Husbandry,  the  question  whether  the 
ignores  the  spirit  Central  Vermont  Railroad  Co.  was 
of  the  Law,  to  fol-  violating    the    long-    and    short-haul 

low  the  Letter  ,  i         i  •  r       ,  i 

clause,  by  chargmg  more  for  the  car- 
riage of  freight  from  Boston  to  Detroit  and  other 
western  points  than  for  the  carriage  of  freight  from 
Boston  to  St.  Albans  and  other  local  points  in  Ver- 
mont.* The  question  turned  on  whether  the  two 
kinds  of  traffic  were  carried  "under  substantially 
similar  conditions  and  circumstances." 

In  the  course  of  the  opinion  the  Commission  said : 
''What  is  important  is  the  fact  that  the  through  busi- 
ness is  a  necessity  to  the  Central  Vermont,  if  it  is  to 
maintain  its  present  state  of  efficiency.  The  strictly 
through  tonnage  over  it  for  the  year  ending  June  30, 
1886,  was  79  per  cent  of  all ;  the  strictly  local  tonnage 
was  but  5I  per  cent,  while  what  is  denominated  in 
the  evidence  joint  freight,  that  is  to  say,  freight  re- 
ceived at  points  on  the  line  from  points  beyond  its 
termini,  or  taken  up  at  local  points  to  be  transported 
beyond  the  termini,  was  15I  per  cent.  It  is  very  evi- 
dent from  these  figures  that  neither  on  the  local  traffic 
alone  nor  on  that  and  the  joint  traffic  can  a  first-class 
road  be  maintained.  It  is  therefore  the  right,  and  we 
may  say  the  duty,  of  the  managers  of  the  Central  Ver- 
mont to  obtain  and  keep  up  a  through  business  if 

*  Boston  and  Albany  Railroad  Co.  v.  The  Boston  and  Lowell  Railroad 
Co.,  ei  al.,  in  Decisions  of  the  Interstate  Commerce  Commission,  Vol.  I. 


THE  DECISIONS   OF  THE  COMMISSION  363 

they  can  do  so  without  injustice  to  the  local  traffic  and 
without  violation  of  law. 

"No  injustice  is  done  to  the  local  traffic  by  taking 
through  traffic  at  very  low  rates,  provided  the  doing 
so  neither  makes  the  local  traffic  more  expensive  nor 
otherwise  incommodes  it.  The  defendants  put  in 
evidence  to  show  (i)  that  the  rates  on  local  traffic  are 
not  out  of  proportion  to  those  charged  on  through 
traffic,  it  being  very  much  more  expensive  to  handle 
an  equal  amount  of  the  former  than  of  the  latter; 
(2)  that  the  through  traffic  is  not  carried  at  a  loss,  but 
there  are  net  gains  from  it  in  the  aggregate  exceed- 
ing those  on  the  local  and  joint  traffic  put  together, 
and  that  it  is  by  means  of  these  gains  that  the  efficiency 
of  the  road  is  maintained;  (3)  that  the  rates  on  the 
through  traffic  cannot  be  materially  advanced  without 
losing  it,  and  (4)  that  the  company  cannot  afford  to 
reduce  the  rates  on  the  local  traffic.  There  was 
strong  evidence  in  support  of  all  these  propositions. 
We  are  entirely  satisfied  that  a  large  through  business 
is  essential  to  this  line  if  it  is  to  continue  to  be  a  useful 
line  even  for  local  business.  We  are  also  satisfied 
that  the  people  of  Vermont  are  largely  interested  in 
the  low  rates  on  the  long-haul  traffic,  not  only  because 
to  some  extent  they  send  manufactured  articles  to 
distant  points,  but  much  more  because  Vermont 
relies  very  largely  on  the  West  for  grain,  flour,  meats 
and  provisions.  It  is  highly  probable  that  if  the 
people  of  that  State  pay  high  rates  on  local  traffic, 

2A 


354  RAILWAY   RATES 

they  are  fully  compensated  in  the  low  rates  on  long- 
haul  traffic.  A  board  having  full  power  to  adjust 
rates  as  circumstances  should  seem  to  require,  might 
perhaps  so  hold. 

"But  our  power  in  this  regard  is  restricted  by  the 
terms  of  the  law  which  absolutely  forbids  a  carrier 
*  to  charge  or  receive  any  greater  compensation  in  the 
aggregate  for  the  transportation  of  passengers  or  of 
like  kind  of  property  under  substantially  similar  cir- 
cumstances and  conditions  for  a  shorter  than  for  a 
longer  distance  over  the  same  line  in  the  same  direc- 
tion, the  shorter  being  included  within  the  longer 
distance.'  *  This  is  the  law  which  governs  our  actions, 
and  it  cannot  be  departed  from  by  us  on  considera- 
tions of  equity,  or  of  what  would  be  for  the  interest 
of  parties  concerned.  If  parties  complain  of  a  viola- 
tion of  the  law,  we  can  only  pass  upon  the  charge 
preferred,  and  our  action  cannot  be  affected  by  the 
circumstance  that  the  rates  as  adjusted  are  on  the 
whole  to  their  advantage.  They  must  judge  of  their 
interest,  while  we  are  to  judge  of  the  violations  of  law 
which  are  complained  of." 

*  This  quotation  is  incomplete  ;  there  is  no  full  stop  after  the  word 
"  distance."  The  clause  reads  :  ".  .  .  the  shorter  haul  being  included 
within  the  longer  distance  ;  but  this  shall  not  be  construed  as  authorizing 
any  common  carrier  within  the  terms  of  this  act  to  charge  and  receive  as 
great  compensation  for  a  shorter  as  for  a  longer  distance :  Provided,  how- 
every  that  upon  application  to  the  Commission  appointed  under  this  act, 
such  common  carrier  may,  in  special  cases,  after  investigation  by  the  Com- 
mission, be  authorized  to  charge  less  for  longer  than  for  shorter  distances 
for  the  transportation  of  passengers  or  property  ;  and  the  Commission 
may  from  time  to  time  prescribe  the  extent  to  which  such  designated  com- 
mon carrier  may  be  relieved  from  the  operation  of  this  section  of  this 
act." 


THE  DECISIONS  OF  THE   COMMISSION  355 

The  Commission  then  went  on  to  say  that  the  main 
rehance  of  the  defendants,  to  prove  that  the  through 
freight  and  the  local  freight  were  not  carried  "under 
substantially  similar  conditions  and  circumstances," 
was  the  existence  of  competition  for  the  through 
traffic  and  the  absence  of  competition  for  the  local 
traffic.  On  this  point  the  Commission  said:  "The 
principal  difference  must  be  found  in  the  fact  that  the 
Trunk  Lines  have  interior  or  shorter  lines  as  com- 
pared with  the  line  of  the  defendants,  and  the  latter 
are  compelled,  therefore,  to  make  very  low  rates  on 
their  through  traffic.  This  is  a  necessity  of  the  situa- 
tion. But  it  is  a  necessity  which  exists  wherever  long 
and  short  lines  compete ;  the  long  line  must  accept  the 
rates  made  by  the  short  line,  and  perhaps  make  con- 
cessions from  them.  In  this  respect  there  is  nothing 
peculiar  in  the  position  of  these  defendants;  there 
are  roads  in  every  part  of  the  country  which  can  make 
the  same  claim  they  do  with  the  same  justice.  It  is 
a  claim  that  could  be  advanced  wherever  a  route, 
however  circuitous,  could  be  formed  for  long-haul 
traffic.  A  line  from  Boston  to  Detroit,  for  example, 
might  be  formed  by  way  of  the  Chesapeake  and  Ohio 
Railway,  and  one  from  Chicago  to  St.  Louis  by  way 
of  St.  Paul.  The  greater  the  departure  from  a  direct 
line,  the  greater  would  commonly  be  the  necessity 
for  lower  rates  on  through  traffic,  and  the  greater  the 
liability  to  have  the  charges  on  the  local  traffic  in- 
creased to  make  the  carriage  of  through  traffic  pos- 


356  RAILWAY  RATES 

sible.  But,  without  enlarging  on  this  branch  of  the 
case,  we  content  ourselves  with  saying  that  such 
peculiar  facts  are  not  found  to  exist  in  this  case  as  will 
justify  the  greater  charge  over  the  shorter  line. 

"...  In  performing  this  duty  we  neither  do,  nor 
with  propriety  can,  express  opinion  upon  the  intrin- 
sic reasonableness  or  justice  of  the  rates  heretofore 
imposed,  except  to  this  extent,  that  we  do  not  think 
it  was  shown  by  the  evidence  that  when  the  local 
tarififs  are  made  to  conform  to  the  letter  of  the  law  as 
above  directed  they  will  be  unreasonable." 

This  decision,  which  was  delivered  by  Judge 
Cooley,  the  Chairman  of  the  Interstate  Commerce 
Commission,  and  was,  by  implication,  completely 
reversed  by  the  Supreme  Court  in  East  Tennessee, 
Virginia  and  Georgia  Railway  Co.,  et  aL,  v.  Inter- 
state Commerce  Commission,^  constitutes  a  powerful 
argument  in  support  of  the  contention  that  the  mak- 
ing of  railway  rates  by  public  authority  must  inevi- 
tably destroy  all  elasticity  of  the  rates,  by  reducing 
the  rates  to  a  cast-iron  system  that  knows  no  discre- 
tion. The  Interstate  Commerce  Commission  was 
afraid  that,  if  it  suspended  the  operation  of  the  long- 
and  short-haul  clause  in  this  case,  —  and  it  obviously 
was  to  the  interest  of  all  parties  that  the  clause  should 
be  suspended,  —  it  would  open  the  "Pandora's  box." 
Thousands  of  requests  for  suspension  would  be  made, 
and  in  the  case  of  many  of  those  requests  it  would 

*  United  States  Reports,  VoL  l8i. 


THE   DECISIONS   OF  THE   COMMISSION  357 

prove  extremely  difficult  to  "draw  the  line."  Rather 
than  undertake  such  an  ungrateful,  not  to  say  odious, 
task  the  Commission  chose  to  punish  the  Vermont 
Central  for  promoting  the  interests  of  the  people 
of  St.  Albans. 

The  unwillingness  of  the  Interstate  Commerce 
Commission  to  take  hold  of  "  troublesome  "  problems 
The  "-Foil  ""of  continues  to  the  present  day.  In 
making  Perplex-  April,  1901,  in  Holdzkom  V.  Michigan 
ing  Problems  for    Central  (I.  C.  R.  9),  the  Commission 

the  Commission  j  -i.     j*  i     r  .  1        cr     i. 

expressed  its  disapproval  of  the  efforts 
of  the  northern  transcontinental  lines  to  obtain  a 
share  in  the  traffic  to  Los  Angeles.  It  said:  "Mer- 
chandise by  these  (northern)  sea  and  rail  routes  must 
be  transported  across  the  continent,  transshipped, 
carried  1200  miles  by  ocean  and  again  transshipped 
for  another  20  miles'  haul  by  rail  before  it  reaches 
the  point  where  it  competes  with  the  all-rail  lines 
of  the  Santa  Fe  and  the  Southern  Pacific.  While 
undoubtedly  traffic  may  be  and  at  times  actually  is, 
and  perhaps  ought  to  be,  carried  by  these  roundabout 
routes,  this  is  not  the  rule;  and  there  is  perhaps  no 
better  remedy  for  that  species  of  folly  than  the  rigid 
enforcement  of  the  principle  of  the  fourth  section. 
Such  competition  introduces  a  troublesome  factor 
into  the  making  of  these  transcontinental  rates,  and 
we  should  hesitate  to  hold  that  this  of  itself  justified 
the  charging  of  a  higher  rate  at  an  intermediate 
point  like  San  Bernardino." 


358  RAILWAY   RATES 

This  last  suggests  the  notion  that  the  efforts  of 
railways  to  increase  their  business  (which  does  not 
seem  to  them  to  be  ''folly")  are  not  to  be  carried  so 
far  as  to  make  perplexing  problems  for  public 
administrative  officers.  Not  long  ago  a  Prussian 
minister,  sadly  harassed  by  transportation  difficulties, 
blurted  out,  —  "Commerce  be  hanged." 

If  the  doctrine  that  a  roundabout  railway,  of  which 
79  per  cent  of  the  freight  was  through  freight,  car- 
ried, of  necessity,  at  rates  lower  than  those  charged 
by  the  more  direct  railway,  might  not  reduce  its 
through  rates  below  the  rates  charged  to  local  points 
had  been  enforced  from  the  close  of  the  Civil  War, 
railway  building  would  have  been  retarded  by 
decades.  Numberless  communities  that  have  been 
served  by  roundabout  railways  since  an  early  date 
would  have  remained  for  decades  without  any  rail- 
way whatever. 

In  James  and  Mayer  Buggy  Co.  v.  The  Cincinnati, 
New  Orleans  and  Texas  Pacific  Railway  Co.,  et  al.j^ 
the  railways  sought  to  justify  the  charging  of  a  lower 
rate  from  Cincinnati  to  Augusta  than  from  Cincinnati 
to  Social  Circle,  an  intermediate  point,  by  saying  that 
the  presence  of  competition  for  the  market  at  Augusta, 
and  absence  thereof  at  Social  Circle,  caused  the  traffic 
of  Cincinnati  with  Augusta  and  Social  Circle  respec- 
tively to  be  carried  under  dissimilar  circumstances 
and  conditions.     At  Baltimore  and  other  seaboard 

*  Decisions  of  the  Interstate  Commerce  Commission,  Vol.  IV, 


THE   DECISIONS   OF   THE   COMMISSION  359 

cities  these  were  large  manufactories  of  buggies  and 
carriages  which  could  deliver  their  products  to 
Augusta  at  prices  which  the  manufactories  at  Cin- 
cinnati could  not  meet,  unless  the  railways  leading 
from  Cincinnati  were  allowed  to  make  rates  to  Au- 
gusta that  would  be  unremunerative  *  if  extended  to 
Social  Circle  and  other  local  points  for  the  trade  of 
which  the  Baltimore  manufacturers  found  it  not 
worth  while  to  compete  actively.  The  Commission 
replied  that  there  was  no  contention  that  the  alleged 
difference  in  circumstances  and  conditions  had  any 
relation  to  the  cost  of  transportation;  and  that  the 
defendants  sought  to  bring  themselves  within  the  ex- 
ceptional conditions  of  the  statute,  because  of  the 
competition  between  Cincinnati  and  eastern  cities 
for  the  buggy  and  carriage  trade  of  the  Augusta 
market.  Said  the  Commission:  "...  Independent 
of  the  rate  to  shorter-distance  points  on  their  lines, 
defendants  insist  they  may  lawfully  make  such  lower 
rate  to  the  longer-distance  point  as  will  prevent 
eastern  manufacturers  more  advantageously  located 
from  taking  the  Augusta  market  from  Cincinnati 
manufacturers.  The  right  to  make  the  lower  charge 
for  the  longer  distance  is  averred  to  be  necessary  to 
secure  the  transportation  of  carriages  from  Cincinnati, 
which,  without  the  advantage  of  such  lower  charge, 
would  come  from  the  factories  of  eastern  makers. 

*  Unremunerative  in  the  sense  that  the  reduction  in  rates  would  not 
stioiulate  trade. 


360  RAILWAY   RATES 

"...  The  fact  that  Cincinnati  makers  ship 
their  product  to  a  market  in  which  they  are  in  the 
matter  of  transportation  at  such  disadvantage  in 
competition  with  their  rivals,  shows  that  the  question 
of  competing  in  the  Augusta  carriage  market  in- 
volves and  depends  upon  commercial  and  other  con- 
ditions than  such  as  affect  freight  charges. 

"If  the  contention  of  the  defendants  is  justified 
by  the  statute,  and  they  can  avail  themselves  of  its 
exceptional  provision  and  charge  more  for  the  shorter 
distance  for  the  purpose  of  equalizing  commercial 
conditions  and  trade  relations  between  the  cities  of 
Cincinnati  and  Baltimore  in  the  Augusta  market, 
the  same  thing  may  be  done  to  place  Cincinnati  car- 
riage makers  on  an  equal  footing  with  those  of  Au- 
gusta in  the  Augusta  market,  or  to  relieve  any  city 
from  any  disadvantage  in  markets  of  other  cities,  or 
to  deprive  all  cities  or  places  of  production  of  any 
advantage  resulting  from  location.  Such  an  inter- 
pretation would  make  the  fourth  section  of  the  Act 
practically  inoperative,  and  with  such  a  license  in 
rate  making,  carriers  might  give  advantage  to  or 
build  or  destroy  the  carriage  or  other  business  of  any 
city  or  locality. 

''The  circumstances  and  conditions  which  would 
justify  a  lower  rate  from  Cincinnati  to  Augusta  than 
to  Social  Circle,  must  have  relation  to  the  nature  and 
character  of  the  service  rendered  by  the  carrier  in 
the  transportation  between  Cincinnati  and  the  places 
on  the  same  line.  ..." 


THE   DECISIONS   OF   THE   COMMISSION  361 

The  Interstate  Commerce  Commission  thus  con- 
demned as  monstrous  the  railway-rate  practice  that 
The  Doctrine  that  would  be  ideal ;  for  the  ideal  system 
Distance  must  not  would  relieve  cvcry  city  from  every 
be  annihilated  disadvantage  in  the  markets  of  other 
cities,  and  would  deprive  all  cities  or  places  of 
production  of  all  advantages  resulting  from  their  loca- 
tion. The  sole  reason  why  man  uses  the  railway  is 
that  it  is  the  most  effective  agency  at  his  command  for 
the  annihilation  of  space  and  distance,  and  it  is  to  be 
hoped  that  in  course  of  time  the  railway  or  some 
other  means  of  transportation  will  become  so  effi- 
cient as  actually  to  annihilate  distance.  The  one 
thing  that  distinguishes  the  American  railway  man- 
agers from  the  railway  managers  of  the  rest  of  the 
world  is  the  success  with  which  they  have  relieved 
cities  or  places  of  production  of  disadvantages  result- 
ing from  their  location.  Before  the  American  rail- 
way managers  had  put  off  their  swaddling  clothes, 
they  had  learned  to  make  their  charges  all  but  exclu- 
sively upon  "commercial"  considerations,  and  with 
complete  disregard  of  relative  costs  of  transportation. 
By  that  means  they  produced  a  degree  of  competition 
between  rival  producing  and  distributing  centres  not 
even  distantly  approached  in  other  countries,  ''made 
the  United  States  one  in  their  business  enterprises,  and 
a  unit  in  their  business  activities,"  and  produced  won- 
derful results  in  the  utilization  of  the  resources  of 
the  United  States.     With  utter  disregard  of  these 


362  RAILWAY  RATES 

facts,  the  Interstate  Commerce  Commission  proposed 
to  adjust  rates  upon  the  absolutely  wooden  principle 
of  the  respective  costs  of  handling  different  kinds  of 
traffic.  It  is  an  illustration  of  the  irony  of  fate  that 
the  most  "practical"  nation  in  the  world,  which  has 
succeeded  in  welding  one  of  the  vastest  expanses  of 
land  in  existence  into  a  more  compact  trading-unit 
than  is  to  be  found  even  among  the  comparatively 
small  States  of  Europe,  should,  at  the  same  time,  have 
produced  an  administrative  body  which  advocates  a 
''yardstick"  method  of  adjusting  railway  rates  that 
would  break  up  the  country  into  innumerable  small 
areas,  each  one  of  which  would  be  more  isolated 
from  the  others,  as  well  as  more  jealous  of  the  others, 
than  were  the  American  colonies  when  they  were 
erecting  customs  barriers  against  one  another, 
"mutually  oppressing  each  other's  industries."  Lan- 
guage, as  well  as  imagination,  breaks  down  under 
the  effort  to  conceive  the  political  demoralization 
and  the  industrial  chaos  that  would  result,  should 
the  Interstate  Commerce  Commission,  or  any  other 
body,  be  given  the  power  to  prescribe  where  the  manu- 
facturer may  and  where  he  may  not  sell  his  wares. 

Of  course  the  liberty  to  enable  a  producer  or  trader, 
wherever  located,  to  sell  his  wares  in  any  market, 
wherever  located,  does  not  confer  upon  railways 
"the  license  to  give  advantage  to  or  build  or  destroy 
the  carriage  or  other  business  of  any  city  or  locality." 
Nor  is  there  any  ground  for  fearing  that  such  liberty 


THE   DECISIONS   OF   THE  COMMISSION  363 

will  degenerate  into  license.  In  the  i8  years  in  which 
the  Interstate  Commerce  Commission  has  been  ad- 
ministering the  Act  to  Regulate  Commerce,  there 
have  been  brought  before  that  tribunal  only  two  cases 
in  which  even  a  person  habitually  and  morbidly  dis- 
trustful of  the  railways  would  be  justified  in  the  sus- 
picion that  the  rate  complained  of  had  been  made 
from  sinister  motives.  The  Chairman  of  the  Inter- 
state Commerce  Commission,  testifying  before  the 
late  Industrial  Commission  on  the  subject  of  per- 
sonal discriminations, — where,  if  anywhere,  one 
would  expect  to  find  rates  made  from  sinister  mo- 
tives, —  stated  that  there  never  had  been  brought  to 
his  knowledge  a  railway  rate  made  in  bad  faith. 

This,  of  course,  does  not  mean  that  there  are  not 
in  the  United  States  many  railway  rates  as  to  the 
relative  reasonableness  of  which  there  is  room  for 
great  difference  of  opinion.  To  quote  from  the  testi- 
mony of  Mr.  E.  P.  Ripley,  President  of  the  Atchison, 
Topeka  and  Santa  Fe,  before  the  late  Industrial 
Commission :  The  adjustment  of  rates  between  com- 
peting markets  and  rival  producing  and  distributing 
centres  is  ''one  of  the  greatest  problems,  and  never 
settled  satisfactorily;  that  is,  somebody  is  always 
disgruntled.  With  the  best  of  intentions  on  the  part 
of  the  railways,  it  always  ends  in  compromise,  not 
satisfactory  to  anybody,  and  very  unsatisfactory  to  a 
great  many.  Each  railroad  is  interested  in  a  par- 
ticular part  or  in  a  particular  locality,  and  each  is 


364  RAILWAY  RATES 

fighting  for  the  supremacy  of  that  particular  part  or 
district,  and  the  result  must  be  ultimately  a  compro- 
mise. Everything  we  have  to-day  is  a  compromise 
between  opposing  ideas  (interests).  ...  In  fact, 
there  have  been  so  many  opposing  interests,  that 
it  has  been  impossible  to  do  anything  very  unfair; 
but  it  is  not  an  exact  science.  It  is  all  a  matter  of 
compromise  and  of  judgment." 

In  August,  1893,  the  Interstate  Commerce  Com- 
mission held  that  the  rates  made  by  certain  railroads 
T)u  Carriers  are  to  Troy,  Ala.,  were  relatively  un- 
the  Best  Judges  of  just  to  that  city,  when  compared  with 
^'^"  those    to    Montgomery,    Ala.,     and 

that  the  injustice  arose  from  the  practice  of  bas- 
ing the  Troy  rates  on  the  rates  to  Alontgomery 
as  a  "trade  centre"  or  basing  point.*  Said  the 
Commission,  "The  fact,  therefore,  insisted  upon  by 
counsel  for  the  roads  as  a  matter  of  defence,  that 
Montgomery  is  a  much  larger  city  with  more  exten- 
sive business  interests  than  Troy,  and  is  and  has  been 
treated  by  the  roads  in  making  rates  to  Troy  and  other 
surrounding  towns  as  a  'trade  centre'  or  'basing- 
point,'  is  no  justification  for  discrimination  in  those 
rates  in  favor  of  Montgomery." 

The  defendants  also  sought  to  justify  their  rates 
by  pleading  water  competition   at  INIontgomery  via 

*  TTu  Board  of  Trade  of  Troy,  Alabama,  v.  The  Alabama  Midland 
Railway  Co.,  et  al.,  in  Decisions  of  the  Interstate  Commerce  Commission^ 
VoL  VI. 


THE   DECISIONS   OF   THE   COMMISSION  365 

the  Alabama  River.  To  that  plea  the  Commission 
replied :  "The  mere  fact  that  a  point  is  situated  upon 
a  navigable  stream  does  not  of  itself  justify  the  lesser 
charge  for  the  longer  haul  to  such  point,  ...  in 
order  to  justify  such  lesser  charge,  the  water  compe- 
tition must  control  the  carriage  of  the  traffic  on  which 
the  discrimination  is  made." 

The  defendants  failed  to  heed  the  orders  of  the 
Commission  based  upon  the  foregoing  findings. 
Thereupon  the  Commission  filed  a  bill  of  complaint 
in  the  circuit  court  of  the  United  States  for  the  Middle 
District  of  Alabama,  in  equity,  to  compel  obedience 
to  its  orders.  On  the  hearing  in  that  court  the  bill 
of  complaint  was  dismissed,  whereupon  the  com- 
plainant, the  Interstate  Commerce  Commission,  ap- 
pealed the  cause  to  the  United  States  circuit  court 
of  appeals  for  the  fifth  judicial  circuit  at  New  Or- 
leans, La.  The  decree  of  the  circuit  court  was 
affirmed ;  and  from  that  judgment  the  appellant  ap- 
pealed to  the  Supreme  Court  of  the  United  States.* 

The  Supreme  Court,  in  the  course  of  the  opinion 
affirming  the  decree  of  the  circuit  court  of  appeals, 
said:  "It  is  contended  in  the  briefs  filed  on  behalf 
of  the  Interstate  Commerce  Commission  that  the 
existence  of  rival  lines  of  transportation,  and  conse- 
quently of  competition  for  the  traffic,  are  not  facts 
to  be  considered  by  the  courts  when  determining 

*  United  States  Reports,  Vol.  i68,  Interstate  Commerce  Commission 
V.  Alabama  Midland  Railway  Co.,  et  al. 


366  RAILWAY  RATES 

whether  property  transported  over  the  same  line  is 
carried  under  'substantially  similar  circumstances 
and  conditions,'  as  that  phrase  is  found  in  the  fourth 
section  of  the  Act.  .  .  . 

''In  order  further  to  guard  against  any  misappre- 
hension of  the  scope  of  our  decision,  it  may  be  well 
to  observe  that  we  do  not  hold  that  the  mere  fact  of 
competition,  no  matter  what  its  character  or  extent, 
necessarily  relieves  the  carrier  from  the  restraints  of 
the  third  and  fourth  sections,  but  only  that  these  sec- 
tions are  not  so  stringent  and  imperative  as  to  exclude 
in  all  cases  the  matter  of  competition  from  considera- 
tion, in  determining  the  questions  of  'undue  or  un- 
reasonable preference  or  advantage,'  or  what  are 
'substantially  similar  circumstances  and  conditions.' 
The  competition  may  in  some  cases  be  such  as,  hav- 
ing due  regard  to  the  interests  of  the  public  and  of 
the  carrier,  ought  justly  to  have  effect  upon  rates, 
and  in  such  cases  there  is  no  absolute  rule  which  pre- 
vents the  Commission  or  the  courts  from  taking  that 
matter  into  consideration.  .  .  . 

"As  the  third  section  of  the  Act,  which  forbids  the 
making  or  giving  any  undue  or  unreasonable  prefer- 
ence or  advantage  to  any  particular  person  or  locality, 
does  not  define  what,  under  that  section,  shall  con- 
stitute a  preference  or  advantage  to  be  undue  or 
unreasonable,  and  as  the  fourth  section,  which  for- 
bids the  charging  or  receiving  greater  compensation 
in  the  aggregate  for  the  transportation  of  like  kinds 


THE  DECISIONS   OF  THE  COMMISSION  367 

of  property  for  a  shorter  than  for  a  longer  distance 
over  the  same  line,  under  substantially  similar  cir- 
cumstances and  conditions,  does  not  define  or 
describe  in  what  the  similarity  or  dissimilarity  of  cir- 
cumstances and  conditions  shall  consist,  it  cannot  be 
doubted  that  whether,  in  particular  instances,  there 
has  been  an  undue  or  unreasonable  prejudice  or 
preference,  or  whether  the  circumstances  and  con- 
ditions of  the  carriage  have  been  substantially  similar 
or  otherwise,  are  questions  of  fact,  depending  on  the 
matters  proved  in  each  case.  .  .  . 

"The  circuit  court  of  appeals,  in  affirming  the 
decree  of  the  circuit  court,  used  the  following  lan- 
guage :  ' .  .  .  The  volume  of  population  and  of  busi- 
ness at  Montgomery  is  many  times  larger  than  it  is 
at  Troy.  There  are  many  more  railway  lines  running 
to  and  through  Montgomery,  connecting  with  all 
the  distant  markets.  The  Alabama  River,  open  all 
the  year,  is  capable,  if  need  be,  of  bearing  to  Mobile, 
on  the  sea,  the  burden  of  all  the  goods  of  every  class 
that  pass  to  or  from  Montgomery.  The  competition 
of  the  railway  lines  is  not  stifled,  but  is  fully  recog- 
nized, intelligently  and  honestly  controlled  and 
regulated  by  the  traffic  association  in  its  schedule  of 
rates.  There  is  no  suggestion  in  the  evidence  that 
the  traffic  managers  who  represent  the  carriers  that 
are  members  of  that  association  are  incompetent, 
or  under  the  bias  of  any  personal  preference  for 
Montgomery  or  prejudice  against  Troy,  that  has  led 


368  RAILWAY   RATES 

them,  or  is  likely  to  lead  them,  to  unjustly  discrimi- 
nate against  Troy.  When  the  rates  to  Montgomery 
were  higher  a  few  years  ago  than  now,  actual  active 
water-line  competition  by  the  river  came  in,  and  the 
rates  were  reduced  to  the  level  of  the  lowest  practical 
paying  water  rates ;  and  the  volume  of  carriage  by  the 
river  is  now  comparatively  small ;  but  the  controlling 
power  of  that  water  line  remains  in  full  force,  and 
must  ever  remain  in  force  as  long  as  the  river  remains 
navigable  to  its  present  capacity.  And  this  water 
line  affects,  to  a  degree  less  or  more,  all  the  ship- 
ments to  or  from  Montgomery  from  or  to  all  the 
long-distance  markets.  .  .  .  The  volume  of  trade 
to  be  competed  for,  the  number  of  carriers  actually 
competing  for  it,  a  constantly  open  river  present  to 
take  a  large  part  of  it  whenever  the  railroad  rates 
rise  up  to  the  mark  of  profitable  water  carriage,  seem 
to  us,  as  they  did  to  the  circuit  court,  to  constitute 
circumstances  and  conditions  at  Montgomery  sub- 
stantially dissimilar  from  those  existing  at  Troy,  and 
to  relieve  the  carriers  from  the  charges  preferred 
against  them  by  its  board  of  trade.  We  do  not  dis- 
cuss the  third  and  fourth  contentions  of  the  counsel 
for  the  appellant  further  than  to  say  that  within  the 
limits  of  the  exercise  of  intelligent  good  faith  in  the 
conduct  of  their  business,  and  subject  to  the  two 
leading  prohibitions  that  their  charges  shall  not  be 
unjust  or  unreasonable,  and  that  they  shall  not 
unjustly  discriminate  so  as  to  give  undue  preference 


THE   DECISIONS   OF  THE   COMMISSION  369 

or  disadvantage  to  traffic  or  persons  similarly  cir- 
cumstanced, the  Act  to  Regulate  Commerce  leaves 
common  carriers,  as  they  were  at  the  common  law, 
free  to  make  special  rates  looking  to  the  increase  of 
their  business,  to  classify  their  traffic,  to  adjust  and 
apportion  their  rates  so  as  to  meet  the  necessities  of 
commerce  and  of  their  own  situation  and  relation 
to  it,  and  generally  to  manage  their  important  inter- 
ests upon  the  same  principles  which  are  regarded  as 
sound,  and  adopted  in  other  trades  and  pursuits. 
The  carriers  are  better  qualified  to  adjust  such  mat- 
ters than  any  court  or  board  of  public  administra- 
tion, and,  within  the  limits  suggested,  it  is  safe  and 
wise  to  leave  to  their  managers  the  adjusting  or  [of] 
dissimilar  circumstances  and  conditions  to  their 
business.' 

"The  last  sentence  in  this  extract  is  objected  to  by 
the  Commission's  counsel,  as  declaring  that  the  deter- 
mination of  the  extent  to  which  discrimination  is  justi- 
fied by  circumstances  and  conditions  should  be  left 
to  the  carriers.  If  so  read,  we  should  not  be  ready  to 
adopt  or  approve  such  a  position.  But  we  under- 
stand the  statement,  read  in  the  connection  in  which 
it  occurs,  to  mean  only  that,  when  once  a  substantial 
dissimilarity  of  circumstances  and  conditions  has 
been  made  to  appear,  the  carriers  are,  from  the  nature 
of  the  question,  better  fitted  to  adjust  their  rates  to 
suit  such  dissimilarity  of  circumstances  and  conditions 
than  courts  or  commissions;  and  when  we  consider 


370  RAILWAY   RATES 

the  difficulty,  the  practical  impossibility,  of  a  court 
or  a  commission,  taking  into  view  the  various  and 
continually  changing  facts  that  bear  upon  the  ques- 
tion, and  intelligently  regulating  rates  and  charges 
accordingly,  the  observation  objected  to  is  manifestly 
just.  But  it  does  not  mean  that  the  action  of  the 
carriers,  in  fixing  and  adjusting  the  rates,  in  such 
instances,  is  not  subject  to  revision  by  the  Commis- 
sion and  the  courts,  when  it  is  charged  that  such 
action  has  resulted  in  rates  unjust  or  unreasonable, 
or  in  unjust  discriminations  and  preferences.  .  .  . 

"Coming  at  last  to  the  questions  of  fact  in  this  case, 
we  encounter  a  large  amount  of  conflicting  evidence. 
It  seems  undeniable,  as  the  effect  of  the  evidence  on 
both  sides,  that  an  actual  dissimilarity  of  circum- 
stances and  conditions  exists  between  the  cities  con- 
cerned, both  as  respects  the  volume  of  their  respective 
trade  and  the  competition,  affecting  rates  occasioned 
by  rival  routes  by  land  and  by  water.  Indeed,  the 
commission  itself  recognized  such  a  state  of  facts 
by  making  an  allowance  in  the  rates  prescribed  for 
dissimilarity  resulting  from  competition ;  and  it  was 
contended  on  behalf  of  the  Commission,  both  in  the 
courts  below  and  in  this  court,  that  the  competition 
did  not  justify  the  discrimination  against  Troy  to 
the  extent  shown,  and  that  the  allowance  made  there- 
fore by  the  Commission  was  a  due  allowance. 

"The  issue  is  thus  restricted  to  the  question  of  the 
preponderance  of  the  evidence  on  the  respective  sides 


THE   DECISIONS   OF   THE   COMMISSION  371 

of  the  controversy.  We  have  read  the  evidence  dis- 
closed by  the  record,  and  have  endeavored  to  weigh 
it  with  the  aid  of  able  and  elaborate  discussions  by 
the  respective  counsel. 

"No  useful  purpose  would  be  served  by  an  attempt 
to  formally  state  and  analyze  the  evidence,  but  the 
result  is  that  we  are  not  convinced  that  the  courts 
below  erred  in  their  estimate  of  the  evidence,  and 
that  we  perceive  no  error  in  the  principles  of  law  on 
which  they  proceeded  in  the  application  of  the 
evidence." 

The  Supreme  Court  once  more  construed  the  third 
and  fourth  sections  of  the  Act  to  Regulate  Com- 
Ttrr     ^    J.  .■      merce  in  East  Tennessee,  VirHnia  and 

When  Competi-  '         '^ 

tion  justifies  a        Georgia  Railway  Co.,   et   al.,  A p pel- 
Lower  Rate  on  the  lants,    V.    Interstate   Commerce    Com- 
onger    au  mission.^     Certain  southern  railways, 

in  connection  with  steamship  companies  operating 
between  the  North  Atlantic  ports  and  the  southern 
ports,  were  carrying  freight  to  Nashville,  Tenn.,  by 
way  of  Chattanooga,  in  competition  with  the  all-rail 
lines  leading  from  the  North  to  Cincinnati,  and  thence 
by  way  of  the  Louisville  and  Nashville  to  Chatta- 
nooga. The  Interstate  Commerce  Commission  had 
found  f  that  the  rate  to  Nashville  was  fixed  by  the 

*  United  States  Reports,  Vol.  l8l.  Compare  also:  Vol.  175,  Louisville 
and  Nashville  Railroad  Co.,  et  al.,  Appellants,  v.  Henry  W.  Be^lmer. 

t  The  Board  of  Trade  of  Chattanooga  v.  The  East  Tennessee,  Virginia 
df  Georgia  Railway  Co.,  et  al. 


372  RAILWAY  RATES 

all-rail  lines  reaching  that  city  by  way  of  Cincinnati, 
and  that  the  southern  lines  reaching  Nashville  by  way 
of  Chattanooga  had  no  voice  or  influence  in  the  de- 
termination of  the  rate  to  Nashville.  The  southern 
lines,  it  had  found,  were  under  compulsion  to  meet 
the  rates  established  by  the  northern  lines,  in  connec- 
tion with  the  Louisville  and  Nashville,  or  to  leave 
the  northern  carriers  in  undisputed  possession  of  the 
entire  traffic.  That  alternative  meant  the  loss  of 
revenue  obtained  from  the  large  percentage  of  Nash- 
ville business  which  they  had  been  securing.  The 
Commission  had  ordered  the  southern  roads  to  desist 
from  charging  more  to  Chattanooga,  the  lesser  dis- 
tance, than  to  Nashville,  the  longer  distance.  But 
it  intimated  to  the  railways  that,  if  they  would  lower 
their  rates  to  Chattanooga,  so  that  they  would  be 
relatively  reasonable  to  that  place,  it  (the  Commis- 
sion) would  consider  an  application  for  suspension 
of  the  long-  and  short-haul  clause.  As  the  railways 
failed  to  obey  the  order  of  the  Commission,  proceed- 
ings to  compel  obedience  were  begun  in  the  circuit 
court  and  carried  thence  to  the  circuit  court  of  appeals 
for  the  sixth  circuit. 

The  Supreme  Court  said :  " .  .  .  It  is  at  once  ap- 
parent that  the  contentions  (of  the  Interstate  Com- 
merce Commission)  divide  themselves  into  two 
classes:  the  first,  a  proposition  of  law  involving  the 
construction  of  the  Act  to  Regulate  Commerce,  and 
the  others  embracing  ultimate  deductions  from  the 


THE   DECISIONS   OF   THE   COMMISSION  373 

facts  proven.  The  legal  proposition  is  this:  that 
where,  in  consequence  of  competitive  conditions  ex- 
isting at  a  particular  point,  the  dissimilarity  of  cir- 
cumstance provided  in  the  fourth  section  of  the  act 
arises,  it  cannot  justify  a  carrier  on  his  own  motion 
{i.e.  without  special  dispensation  from  the  Commis- 
sion) in  charging  a  lesser  rate  for  the  longer  haul  to 
the  competitive  point  than  is  asked  for  the  shorter 
haul  to  the  non-competitive  point,  if  in  doing  so  a 
preference  in  favor  of  the  competitive  point  arises 
or  a  discrimination  against  the  non-competitive  point 
is  produced.  That  is  to  say,  it  is  insisted  that  the 
provision  as  to  substantially  dissimilar  circumstances 
and  conditions  of  the  fourth  section  and  the  com- 
mands of  the  third  section  as  to  discrimination  and 
undue  preference,  being  found  in  the  one  statute, 
must  be  construed  together,  so  that  the  dissimilarity 
of  circumstance  and  condition  cannot  be  availed  of 
if  either  discrimination  or  preference  will  arise  from 
doing  so.  We  quote  the  exact  language  in  which 
this  proposition  is  stated  by  counsel,  reproducing  the 
italics  by  which  the  import  of  the  contention  is  em- 
phasized :  — 

"'Fifth.  That  the  injury  or  prejudice  to  Chatta- 
nooga, shown  by  the  proof  to  be  the  effect  of  the  dis- 
criminations practised  against  Chattanooga  and  in 
favor  of  Nashville,  brings  the  case  within  the  evil 
which  the  Act  to  Regulate  Commerce  was  designed 
to  remedy,  and  that  competition,  no  matter  how  force- 


374  RAILWAY  RATES 

jid,  should  not  he  held  to  nullify  the  law  itself,  —  in 
other  words,  shoidd  not  be  held  to  justify  the  very 
wrongs  which  the  law  was  enacted  to  remedy.^  .  .  . 

"But  in  substance  this  reasoning  only  amounts 
to  the  assertion  that  the  settled  construction  of  the 
statute,  by  which  it  has  been  held  that  real  and  sub- 
stantial competition  gives  rise  to  the  dissimilarity  of 
circumstance  and  condition  pointed  out  in  the  fourth 
section  is  wrong,  and  should  be  overruled.  .   .  . 

"It  is  not  difficult  to  perceive  the  origin  of  the  fal- 
lacy upon  which  the  contention  rests.  It  is  found 
in  blending  the  third  and  fourth  sections  in  such  a 
manner  as  necessarily  to  destroy  one  by  the  other, 
instead  of  construing  them  so  as  to  cause  them  to 
operate  harmoniously.  In  a  supposed  case  when, 
in  the  first  instance,  upon  an  issue  as  to  a  violation  of 
the  fourth  section  of  the  act,  it  is  conceded  or  estab- 
lished that  the  rates  charged  to  the  shorter  distance 
point  are  just  and  reasonable  in  and  of  themselves, 
and  it  is  also  shown  that  the  lesser  rate  charged  for 
the  longer  haul  is  not  wholly  unremunerative,  and 
has  been  forced  upon  the  carriers  by  competition  at 
the  longer  distance  point,  it  must  result  that  a  dis- 
crimination springing  alone  from  a  disparity  in  rates 
cannot  be  held,  in  legal  effect,  to  be  the  voluntary  act 
of  the  defendant  carriers,  and  as  a  consequence  the 
provisions  of  the  third  section  of  the  act  forbidding 
the  making  or  giving  of  an  undue  or  unreasonable 
preference  or  advantage  will  not  apply.     The  pro- 


THE   DECISIONS   OF  THE   COMMISSION  375 

hibition  of  the  third  section,  when  that  section  is  con- 
sidered in  its  proper  relation,  is  directed  against  un- 
just discrimination  or  undue  preference  arising  from 
the  voluntary  and  wrongful  act  of  the  carriers  com- 
plained of  as  having  given  undue  preference,  and  does 
not  relate  to  acts  the  result  of  conditions  wholly  be- 
yond the  control  of  such  carriers.  And  special  atten- 
tion was  directed  to  this  view  in  the  Behlmer  Case, 
in  the  passage  which  we  have  previously  excerpted. 
To  otherwise  construe  the  statute  would  involve  a 
departure  from  its  plain  language,  and  would  be  to 
confound  cause  with  effect.  For,  if  the  preference 
occasioned  in  favor  of  a  particular  place  by  competi- 
tion there  gives  rise  to  the  right  to  charge  the  lesser 
rate  to  that  point,  it  cannot  be  that  the  availing  of 
this  right  is  the  cause  of  the  preference ;  and  espe- 
cially is  this  made  clear  in  the  case  supposed,  since  it 
is  manifest  that  forbidding  the  carrier  to  meet  the 
competition  would  not  remove  the  discrimination. 

"The  only  principle  by  which  it  is  possible  to 
enforce  the  whole  statute  is  the  construction  adopted 
by  the  previous  opinions  of  this  court;  that  is,  that 
competition  which  is  real  and  substantial,  and  exer- 
cises a  potential  influence  on  rates  to  a  particular 
point,  brings  into  play  the  dissimilarity  of  circum- 
stances and  condition  provided  by  the  statute,  and 
justifies  the  lesser  charge  to  the  more  distant  and 
competitive  point  than  to  the  nearer  and  non-com- 
petitive place,  and  that  this  right  is  not  destroyed 


376  RAILWAY   RATES 

by  the  mere  fact  that  incidentally  the  lesser  charge 
to  the  competitive  point  may  seemingly  give  rise  to 
a  preference  to  that  point,  and  the  greater  rate  to 
the  non-competitive  point  may  apparently  engender 
a  discrimination  against  it.  We  say  seemingly  on 
the  one  hand  and  apparently  on  the  other,  because 
in  the  supposed  cases  the  preference  is  not  'undue' 
or  the  discrimination  'unjust.'  This  is  clearly  so, 
when  it  is  considered  that  the  lesser  charge  upon 
which  both  the  assumption  of  preference  and  dis- 
crimination is  predicted  is  sanctioned  by  the  statute, 
which  causes  the  competition  to  give  rise  to  the  right 
to  make  such  lesser  charge.  Indeed,  the  findings  of. 
fact  made  by  the  Commission  in  this  case  leave  no 
room  for  the  contention  that  either  undue  preference 
in  favor  of  Nashville  or  unjust  discrimination  against 
Chattanooga  arose  merely  from  the  act  of  the  carriers 
in  meeting  the  competition  existing  at  Nashville. 
The  Commission  found  that  if  the  defendant  carriers 
(the  southern  roads)  had  not  adjusted  their  rates  to 
meet  the  competitive  condition  at  Nashville,  the  only 
consequence  would  have  been  to  deflect  the  traffic  at 
the  reduced  rates  over  other  lines.  From  this  it 
follows  that,  even  although  the  defendant  carriers 
had  not  taken  the  dissimilarity  of  circumstance  and 
condition  into  view,  and  had  continued  their  rates  to 
Nashville  just  as  if  there  had  been  no  dissimilarity 
of  circumstance  and  condition,  the  preference  in 
favor  of  Nashville,  growing  out  of  the  conditions 


THE   DECISIONS   OF   THE   COMMISSION  377 

there  existing,  would  have  remained  in  force,  and 
hence  the  discrimination  which  thereby  arose  against 
Chattanooga  would  have  likewise  continued  to  exist. 
In  other  words,  both  Nashville  and  Chattanooga  would 
have  been  exactly  in  the  same  position  if  the  long-  and 
short-haul  clause  had  not  been  brought  into  play. 

''That,  as  indicated  in  the  previous  opinions  of 
this  court,  there  may  be  cases  where  the  carrier  can- 
not be  allowed  to  avail  of  the  competitive  condition 
because  of  the  public  interests  and  the  other  provi- 
sions of  the  statute,  is  of  course  clear.  What  par- 
ticular environment  may  in  every  case  produce  this 
result  cannot  be  in  advance  indicated.  But  the  sug- 
gestion of  an  obvious  case  is  not  inappropriate.  Take 
a  case  where  the  carrier  cannot  meet  the  competitive 
rate  to  a  given  point  without  transporting  the  mer- 
chandise at  less  than  the  cost  of  transportation,  and 
therefore  without  bringing  about  a  deficiency,  which 
would  have  to  be  met  by  increased  charges  upon 
other  business.  Clearly,  in  such  a  case,  the  engaging 
in  such  competitive  traffic  would  both  bring  about  an 
unjust  discrimination  and  a  disregard  of  the  public 
interest,  since  a  tendency  toward  unreasonable  rates 
on  other  business  would  arise  from  the  carriage  of 
traffic  at  less  than  the  cost  of  transportation  to  par- 
ticular places.  But  no  condition  of  this  character 
is  here  in  question,  since  the  Commission  find  as 
follows :  — 

"'There  is  a  conceded  margin  of  profit  in  the  rates 


378  RAILWAY   RATES 

now  in  force  to  Nashville  and  Memphis,  with  refer- 
ence to  the  additional  expense  incurred  in  carrying 
eastern  traffic  to  those  destinations,  but  whether  that 
margin  affords  reasonable  compensation  for  the  ser- 
vice thus  rendered  cannot  be  determined  from  the 
evidence.' 

"And  the  fact  thus  established  was  not  contro- 
verted either  in  the  opinion  of  the  circuit  court  or  in 
that  of  the  circuit  court  of  appeals,  and  is  not  now 
denied.  Applying  the  principle  to  which  we  have 
adverted  to  the  condition  as  above  stated,  it  is  appar- 
ent that  if  the  carrier  was  prevented  under  the  cir- 
cumstances from  meeting  the  competitive  rate  at 
Nashville,  when  it  could  be  done  at  a  margin  of  profit 
over  the  cost  of  transportation,  it  would  produce  the 
very  discrimination  which  would  spring  from  allow- 
ing the  carrier  to  meet  a  competitive  rate  where  the 
traffic  must  be  carried  at  an  actual  loss.  To  compel 
the  carriers  to  desist  from  all  Nashville  traffic  under 
the  circumstances  stated,  would  simply  result  in 
deflecting  the  traffic  to  Nash\ille  to  other  routes, 
and  thus  entail  upon  the  carriers  who  were  inhibited 
from  meeting  the  competition,  although  they  could 
do  so  at  a  margin  of  profit,  the  loss  which  would  arise 
from  the  disappearance  of  such  business,  without 
an}'^'ise  benefiting  the  public." 

In  Interstate  Commerce  Commission  v.  Louisville 
and   Nashville   Railroad  Company,^    the    Supreme 

*  UniUd  StaUs  ReporU,  Vol.  190. 


THE   DECISIONS   OF   THE   COMMISSION  379 

Court  of  the  United  States  upheld  the  competitive- 
point,  or  basing-point,  system  as  it  exists  at  the  South, 
as  the  outcome  of  the  efforts  of  the  railways  to  regu- 
late the  competition  among  themselves  and  to  make 
their  rates  conform  to  that  regulated  competition. 
Thus  was  defeated  another  long-continued  series  of 
efforts  of  the  Interstate  Commerce  Commission  to 
use  the  power  to  fix  rates  and  the  power  to  condemn 
an  existing  rate  for  the  purpose  of  making  "laws  of 
wide  import,  destroying  some  branches  of  commerce 
that  have  long  existed,  and  undertaking  to  change 
the  laws  and  customs  of  transportation  in  the  promo- 
tion of  what  is  supposed  to  be  public  policy."  *  The 
law  of  wide  import  which  the  Commission  had  sought 
to  enact  in  this  case  was  that  the  basing-point  system 
should  be  wiped  out. 

*  United  States  Reports,  Vol.  162,  Interstate  Commerce  Commission  v. 
Texas  and  Pacific  Railroad  Co, 


CHAPTER  VII 

THE   DECISIONS   OF   THE   INTERSTATE   COMMERCE 
COMMISSION    (continued) 

The  Doctrine  that  no  Place  may  he  deprived  of  the 
Advantages  accruing  to  it  by  Virtue  of  its  Geo- 
graphical Position 

Another  doctrine  developed  by  the  Interstate 
Commerce  Commission  is  that  no  place  may  be  de- 
prived of  the  advantages  accruing  to  it  by  virtue  of 
its  geographical  position.  This  doctrine,  stated  in 
the  terms  that  reveal  its  monstrous  nature,  is  that 
no  place  may  be  relieved  of  the  disadvantages  under 
which  it  labored  before  the  railway  had  been  invented. 
It  originated  in  the  Middle  Ages,  when  the  English 
Parliament  began  to  improve  the  highways,  so  that 
landowners  distant  from  London  might  be  enabled 
to  bring  to  that  city  hay,  grain  and  other  farm  prod- 
uce. On  that  occasion  the  landowners  in  the  imme- 
diate vicinity  of  London  protested  that  Parliament 
had  no  right  to  improve  the  highways  and  thus  de- 
prive them  of  the  advantages  that  had  accrued  to 
them  by  virtue  of  their  geographical  position  in  the 

days  when  the  highways  had  been  so  wretched  as  to 

380 


THE   DECISIONS    OF   THE   COMMISSION  381 

preclude  the  shipping  of  farm  produce  over  long  dis- 
tances. The  late  Mr.  Simon  Sterne,  who  held  that 
the  railway  was  a  highway,  and  sought  guidance  for 
the  solution  of  modern  problems  in  the  study  of  the 
law  cases  of  the  Middle  Ages,  tried  to  foist  this  doc- 
trine upon  the  United  States.  In  conjunction  with 
Mr.  F.  B.  Thurber,  he  organized  the  Anti-Monopoly 
League  of  New  York,  which  stood  for  two  things: 
''the  right  of  a  man  20  miles  from  a  market  to  bring 
his  product  to  market  over  a  highway  (i.e.  a  rail- 
way) at  a  less  rate  of  toll  than  he  who  is  30  miles 
away,  ..."  and  the  doctrine  that  "the  railways 
have  no  right  to  conspire  to  wipe  out  and  destroy  the 
natural  advantages  of  our  great  city  (New  York) 
and  place  us  upon  a  level  with  Boston,  Baltimore 
and  Philadelphia." 

Since  sometime  in  the  fifties  the  railways  leading 
to  New  York  City  and  the  neighboring  cities  have 
™  ^  .  .  made  a  single  group  rate  or  postage- 
tries  to  preserve  Stamp  rate  on  all  milk  and  cream  sent 
Monopolies  due  to  ^q  Ncw  York.      The   distance   over 

Location  1  •  i  m  1  j  i.  •         j 

which  milk  and  cream  were  shipped 
was  increased  with  the  growth  of  the  cities  in  question ; 
and  by  1895,  the  railroads  west  of  the  Hudson  River 
were  carrying  milk  to  New  York  from  points  417  miles 
distant.  In  the  year  just  mentioned.  The  Milk 
Producers'  Protective  Association,*  consisting  of  600 

*  The  Milk  Producers'  Protective  Association  v.  The  Delaware,  Lacka- 
wanna and  Western  Railroad  Co.,  et  al.,  in  Decisions  of  the  Lnterstatt 
Commerce  Commission,  Vol.  VII. 


382  RAILWAY  RATES 

producers  of  milk  in  the  immediate  vicinity  of  New 
York,  complained  that  the  group  rate  was  subjecting 
them  to  undue  discrimination  and  was  extending  an 
undue  preference  to  the  more  distant  producers  of 
milk.  Thereupon  the  Interstate  Commerce  Com- 
mission broke  up  the  group  rate  of  32  cents  per  100 
pounds  of  milk  and  50  cents  per  100  pounds  of  cream. 
It  ordered  the  railways  to  make  the  following  charges 
on  milk  and  cream :  for  the  first  40  miles,  23  cents  on 
milk  and  41  cents  on  cream;  for  distances  between 
40  miles  and  100  miles,  26  cents  on  milk  and  44  cents 
on  cream;  for  distances  between  100  miles  and  190 
miles,  29  cents  on  milk  and  47  cents  on  cream ;  and 
for  distances  over  190  miles,  the  old  rates  of  32  cents 
on  milk  and  50  cents  on  cream. 

The  Commission  said :  ''There  has  been  uniformity 
in  charge  and  absence  of  uniformity  as  to  service 
{i.e.  differences  in  the  length  of  haul)  and  traffic  in- 
ducements on  the  lines  west  of  the  Hudson  River. 
Natural  disadvantages  of  more  distant  producers 
have  been  thereby  overcome,  and  producers  nearer 
the  market  have  been  denied  recognition  of  their 
more  favorable  location.  Under  the  present  system, 
the  amount  of  the  uniform  transportation  charge  is 
made  the  subject  of  agreement  between  the  principal 
carriers  west  of  the  Hudson  River,  and  the  cost  to 
dealers  in  the  city  market  of  milk  brought  over  both 
long  and  short  distance  is  thereby  practically  or 
nearly  equalized.     This  situation  facilitates  agree- 


THE  DECISIONS   OF   THE  COMMISSION  383 

ments  among  the  dealers  as  to  the  price  paid  to  pro- 
ducers, and  it  does  not  operate  to  prevent  them  from 
fixing  a  standard  scale  of  charges  to  the  different 
classes  of  consumers.  Benefits  which  may  accrue 
to  New  York  City  consumers  under  the  uniform  milk 
rate  would  apparently  be  enhanced  rather  than  di- 
minished under  transportation  rates  properly  graded 
or  grouped,  and  no  higher  than  reasonable  from  the 
more  distant  sources  of  supply."  The  statement 
contained  in  the  last  sentence  is  an  unsupported  as- 
sertion; but  in  such  unsupported  assertions  the 
records  of  the  Commission  abound. 

"The  findings  demonstrate  .  .  .  that  the  addition 
of  new  territory,  in  connection  with  the  methods 
adopted  for  developing  the  business,*  has  operated 
to  the  prejudice  of  the  old  territory.  The  near-by 
section,  comprised  within  a  radius  of  loo  miles  of 
New  York  by  direct  lines,  has  participated  but  little 
in  the  more  than  47  per  cent  increase  in  the  New 
York  supply  during  the  10  years  including  1895. 
While  this  is  partly  due  to  diversion  of  land  in  that 
section  to  other  than  dairy  uses,f  much  of  it  is  directly 
ascribable  to  the  transfer  of  the  patronage  of  many 
New  York  dealers  to  the  distant  producers,  resulting 
from  inducements  offered  by  the  long-distance  roads. 

*  That  is,  the  free  icing  of  milk  in  transportation;  through  soHcitation 
by  railway  agents;  through  facilities  in  the  way  of  receiving  stations, 
where  milk  is  kept  at  a  uniform  temperature  of  40°  Fahrenheit  until  it 
is  shipped;  and  material  aid  to  dealers  and  others  in  the  establishment  of 
creameries  in  the  more  distant  localities. 

f  That  is,  suburban  residences. 


384  RAILWAY  RATES 

It  is  probable  that  in  course  of  time  the  milk  demand 
in  the  New  York  market  will  equal  the  producing 
capacity  of  all  the  various  localities  included  within 
the  present  uniform  rate  territory,  and  this  is  con- 
sidered in  the  findings ;  but  it  is  also  probable  that  the 
carriers  will  be  able,  through  improved  transportation 
methods,  to  bring  milk  daily  over  much  greater  dis- 
tances than  they  do  now,  and  deliver  it  at  their  New 
York  City  terminals  in  good  condition  and  at  a  suit- 
able hour.  The  course  of  the  West  Shore,  in  recently 
extending  the  uniform  milk  rate  to  a  point  near  Buf- 
falo, so  as  to  cover  a  total  distance  of  417  miles  from 
its  Weehawken  terminal,  illustrates  this  view.  The 
interests  of  all  milk  producers,  whether  located  within 
50  or  250  miles  of  New  York  City  on  any  of  the  lines, 
in  retaining  the  share  of  their  traffic  to  which  their 
nearer  location  would  naturally  entitle  them,  are 
plainly  imperiled  under  a  uniform  rate  for  trans- 
portation service.  .  .  . 

*'But  whether  the  area  of  supply  has  been  unneces- 
sarily increased  or  not  under  the  uniform  rate  and  the 
practices  of  the  carriers,  the  right  of  producers  nearer 
the  market  to  a  rate  which  is  reasonable  in  itself  for 
the  service  rendered,  and  relatively  reasonable  as 
compared  with  the  rate  charged  for  the  service  to 
other  producers  of  milk,  must  be  upheld.  .  .  . 

"The  present  system  of  a  uniform  or  blanket  rate 
on  milk  and  also  on  cream  from  all  stations  on  the 
various  defendant  lines  west  of  the  Hudson  River 


THE   DECISIONS   OF   THE   COMMISSION  385 

must  be  held  unlawful  under  both  sections  i  and  3 
of  the  Act  to  Regulate  Commerce,  and  the  resulting 
unreasonableness,  injustice  and  wrongful  prejudices 
and  preferences  should  be  corrected." 

In  this  case  the  reasoning  of  the  Interstate  Com- 
merce Commission  rested  upon  the  doctrines  that 
the  amount  of  milk  offered  to  New  York  City  must 
not  be  allowed  to  exceed  "the  natural  demand," 
lest  the  price  of  milk  should  fall  below  a  "just 
price"  —  in  other  words,  the  Interstate  Commerce 
Commission  undertook  to  fix  the  price  which  the 
people  of  New  York  should  pay  for  milk.  It  ap- 
parently held  that  dairy  farmers  upward  of  40  miles 
from  New  York  must  not  be  allowed  to  meet  any 
of  the  growing  demand  of  New  York  for  milk,  until 
the  farmers  less  than  40  miles  away  had  supplied  their 
"natural"  share  of  that  increased  quantity;  that  dis- 
tricts upward  of  loo  miles  away  must  not  be  allowed 
to  come  in  until  after  the  districts  between  40  miles  and 
100  miles  distant  had  supplied  their  "natural"  share, 
and  so  on.  In  this  connection  it  is  instructive  to  note 
that  one  reason  why  the  New  York  dealers  did  not 
buy  more  milk  of  near-by  farmers  was  that  some  of  the 
latter  persisted  in  feeding  brewery  swill  to  their  cows. 
By  implication  the  Commission  decided  how  much 
milk  from  cows  fed  on  brewery  swill  the  people  of  New 
York  must  consume  before  they  should  have  the  right 
to  avail  themselves  of  the  services  of  the  railways 
which  were  ready  to  bring  milk  from  distant  regions. 

2C 


386  RAILWAY   RATES 

It  is  needless  to  say  that  every  one  of  these  doctrines 
is  not  only  untenable,  but  absolutely  and  unquali- 
fiedly in  violent  opposition  to  the  practices  by  means 
of  which  the  United  States  has  been  settled  and  de- 
veloped. Moreover,  even  if  the  doctrines  in  question 
were  tenable,  they  could  not  be  carried  out.  To  seek 
to  determine  the  '* natural  demand"  of  New  York 
City  for  milk,  the  "just  price"  of  milk,  and  the  share 
in  the  increasing  trade  in  milk  to  which  each  succes- 
sive outlying  region  is  naturally  entitled  by  virtue  of 
its  geographical  position,  is  as  idle  as  were  the  discus- 
sions of  the  schoolmen  of  the  Middle  Ages  as  to  how 
many  angels  could  dance  on  the  point  of  a  needle. 

The  railways  had  aimed  to  fix  the  group  rate  so  that 
the  total  receipts  upon  the  total  traffic  should  be 
remunerative;  and  no  evidence  was  introduced  to 
show  that  the  traffic  was  unduly  remunerative.  The 
traffic  is  exceptionally  expensive  to  handle,  and  can 
be  made  to  pay  only  if  it  can  be  increased  to  large 
proportions.  But  it  cannot  be  increased  to  large  pro- 
portions, unless  the  charge  shall  be  kept  down  to  such 
a  point  that  it  will  be  worth  the  while  for  the  farmer 
who  is  a  long  way  from  New  York  to  go  into  the  dairy 
business.  That  charge,  in  turn,  cannot  be  kept  down, 
unless  the  charge  to  the  near-by  farmer  can  be  kept  up. 
Therefore  such  cutting  into  a  group  rate  as  the 
Commission  practised  in  this  case  tends  to  leave 
unremunerative  the  group  rate  so  operated  upon, 
and  thus  is  likely  to  discourage  the  railways  from 


THE   DECISIONS   OF   THE   COMMISSION  387 

extending  existing  group  rates  or  establishing  new 
ones. 

Two  and  one-half  years  after  the  Commission  had 
broken  up  this  group-rate  on  milk  and  cream  shipped 
to  New  York,  the  president  of  one  of  the  railroads 
involved  reported  that  the  Commission's  order  had 
reduced  the  earnings  of  his  company  by  $30,000  a 
year ;  and  this  must  have  gone  to  the  middlemen,  for 
the  farmer  had  been  receiving,  if  anything,  less  for 
milk,  there  having  been  in  no  case  an  advance  to  the 
farmer,  while  there  had  been  no  decrease  in  the  price 
paid  by  the  consumer* 

In  Germany  the  State  ownership  of  the  railways 
has  led  to  the  establishment  of  the  doctrine  that  no 
producer  or  trader  may  be  deprived  of  the  advantages 
accruing  to  him  by  virtue  of  his  geographical  position. 
In  Germany  they  have  no  group  rates  on  milk.  And 
in  the  year  of  Our  Lord,  1902,  the  firm  of  Von  Bolle 
was  stabling  within  the  city  of  Berlin  14,000  milch 
cows,  which  supplied  milk  to  50,000  families.  In 
addition,  there  were  in  the  suburbs  of  Berlin  hun- 
dreds of  dairies,  each  one  stabling  a  considerable 
number  of  milch  cows.f 

Had  the  Interstate  Commerce  Commission  of  the 
United  States  been  in  existence  in  the  fifties,  when 
the  first  group  rates  were  established  in  a  tentative 

*  The  Forum,  March,  1902,  Mr.  W.  D.  Hines,  First  Vice-President 
Louisville  and  Nashville  Railroad. 

t  Zeiiung  des  Vereins  Deutscher  Eisenbahn-  Verwaltungen,  October  29, 
1902. 


388  RAILWAY  RATES 

way,  and  had  it  slashed  into  the  revenues  to  be  ob- 
tained from  it  in  the  manner  in  which  it  did  in  1895, 
it  is  more  than  probable  that  the  practice  of  making 
group  rates  would  have  come  to  an  end  then  and 
there,  and  the  people  of  the  United  States  would  not 
have  come  to  enjoy  the  fruits  of  one  of  the  most 
beneficent  practices  established  by  our  railways. 

This  matter  is  of  sufficient  importance  to  justify  a 
digression,  for  the  purpose  of  showing  the  part  that 
Grou-b  Rates  build  S^^^P  ^ates  Can  be  made  to  play  in  the 
up  the  Largest  development  of  a  country.  About  20 
Creamery  in  the     years  ago  large  and  small  creameries 

'^  '  were  established  in  almost  every  county 

in  the  eastern  half  of  Nebraska.  They  were  managed 
as  joint-stock  companies  and  as  cooperative  enter- 
prises, the  local  farmers  furnishing  perhaps  a  majority 
of  the  capital ;  but  more  than  three-fourths  of  them 
failed  because  of  poor  management  or  insufficient 
supplies  of  milk  and  cream.  They  were  replaced 
by  concerns  of  which  the  Lincoln  creamery  is  a 
type.  The  concern  in  question  began  in  1890  by 
sending  wagons  into  the  country  districts  to  gather 
cream.  Later  on  it  established  feeders  in  thickly 
settled  districts  a  few  miles  away,  collecting  cream 
and  bringing  it  in  bulk  to  its  various  creameries,  seven 
in  number.  In  1897  it  consolidated  its  various  plants 
into  one  creamery  at  Lincoln,  organizing  stations  for 
the  collection  of  cream  all  along  the  railways  leading 
from  Lincoln.    At  present  it  draws  upon  the  whole 


THE  DECISIONS  OF  THE  COMMISSION  389 

of  southern  Nebraska  and  on  parts  of  northwestern 
Nebraska,  Colorado  and  Kansas,  the  nearest  col- 
lecting station  being  6  miles  from  Lincoln,  and  the 
most  distant  one  being  418  miles  away.  This  cream- 
ery is  said  to  be  the  largest  one  in  the  world,  and 
it  pays  such  high  prices  for  cream  that  it  has  driven 
from  the  field  which  it  covers  all  of  the  old-fashioned 
cooperative  creameries. 

It  is  suggestive  to  note  that  its  business  has  been 
made  possible  by  the  fact  that  the  cream  is  shipped 
under  group  rates  on  express  trains,  at  a  speed 
of  30  miles  an  hour.*  The  proprietors  of  rival 
creameries  in  western  Iowa  complain,  however, 
that  this  practice  violates  all  the  canons  of  nat- 
ural law,  in  that  it  creates  at  Lincoln,  Neb.,  a 
market  for  cream  which  is  produced  in  Iowa  and 
should,  therefore,  be  made  into  butter  in  Iowa 
creameries.  This  complaint  must  have  the  sympathy 
of  the  Interstate  Commerce  Commission,  as  well  as 
of  the  Iowa  State  Railroad  Commission,  which  an- 
nounced, in  1 89 1,  that  the  dairy  farmers  of  eastern 
Iowa  "paid  tribute  to  Chicago,"  when  they  purchased 
hay  and  grain  at  Chicago. 

The  Mobile  and  Ohio  Railroad  Co.  operates  a  road 
from  Mobile,  Ala.,  to  East  St.  Louis,  111.,  a  distance  of 
644  miles.     Some  time  ago  it  made  a  group  rate  of 

*  Report  of  the  Industrial  Commission  on  the  Distribution  of  Farm 
Products.  ' 


390  RAILWAY   RATES 

70  cents  per  100  pounds  on  first-class  vegetables 
Group  Rates  ex.  shipped  to  East  St.  Louis  from  any 
tended  to  South-  point  between  Verona,  369  miles  south 
ernTruck  of  E^st  St.  Louis,  and  Prichard,  641 

miles  south  of  East  St.  Louis.  Begin- 
ning at  Tupelo,  the  first  station  north  of  Verona,  the 
rate  was  gradually  reduced,  becoming,  at  Tupelo,  65 
cents;  at  Humboldt,  52  cents;  and  at  Columbus,  30 
cents.  Humboldt  is  241  miles  south  of  East  St.  Louis, 
and  Columbus  is  175  miles  from  East  St.  Louis.  Vege- 
tables raised  south  of  Verona  come  into  the  market 
earlier  than  those  raised  in  the  vicinity  of  Verona, 
and  for  that  reason  command  a  higher  price.  Those 
raised  at  Humboldt  and  points  north  of  Verona  come 
into  the  market  somewhat  later  and,  for  that  reason, 
do  not  command  quite  so  good  a  price.  The  Mobile 
and  Ohio  Railroad  Co.  had  made  the  group  rate  under 
consideration  for  the  purpose  of  fostering  the  culti- 
vation of  vegetables  in  the  territory  covered  by  the 
group  rate,  and  it  had  succeeded  in  building  up  "a 
very  large  traffic  in  vegetables."  The  rate  in  ques- 
tion had  been  fixed  at  7  o  cents,  in  order  to  meet  the 
competition  of  vegetables  shipped  north  from  New 
Orleans. 

In  1897  one  W.  R.  Rea  complained  before  the 
Interstate  Commerce  Commission*  that  the  Mobile 
and  Ohio  "by  making  a  group  rate  from  Verona  to 

*  W.  R.  Rea  v.  The  Mobile  and  Ohio  Railroad  Co.,  in  Decisions  of 
the  Interstate  Commerce  Commission,  Vol.  VII. 


THE   DECISIONS   OF   THE   COMMISSION  391 

Prichard,  a  distance  of  271  miles,  discriminated 
against  Verona  as  in  favor  of  points  farther  south, 
and  insisted  that  the  shipper  from  such  points  enjoyed 
the  benefits  of  an  earlier  market  and  of  the  same  rate 
for  a  much  greater  distance." 

The  Interstate  Commerce  Commission,  in  the 
course  of  its  opinion,  said:  "There  are  probably 
circumstances  under  which  a  group  rate  of  this  kind 
might  be  justifiable.  It  is  possible  that  this  particu- 
lar rate,  when  all  the  facts  and  circumstances  appear, 
may  be  justifiable ;  but  we  think  that  in  a  total  haul 
of  640  miles,  a  rate  which  for  the  first  271  miles  is  the 
same,  and  which  in  the  next  200  miles  falls  from  70 
cents  to  30  cents  upon  second  class  freight,  and 
from  44  cents  to  22  cents  upon  third  class  freight,  is 
prima  facie  unjust  and  unreasonable  and  a  discrimina- 
tion against  the  nearer  points  in  the  group;  that  in 
the  present  case  the  rates  from  Verona  of  70  cents  on 
second  class  freight  and  44  cents  on  third  class 
freight  are  unreasonable  and  unjust  and  discriminat- 
ing as  to  Verona." 

"At  the  same  time,  we  are  not  furnished  with  the 
necessary  information  to  determine  what  would  be 
a  reasonable  rate  from  this  point ;  and  we  have  con- 
cluded to  make  no  order  in  the  matter  for  the  present, 
but  to  rely  upon  the  defendant  so  to  adjust  its  rates 
in  accordance  with  this  suggestion  as  may  be  reason- 
able and  just,  holding  the  case  open  with  leave  to  the 
complainant  to  apply  for  an  order  in  this  respect,  and 


392  RAILWAY  RATES 

with  leave  to  either  party  to  introduce  further  testi- 
mony, if  so  advised." 

In  this  case  the  Commission  held  that  the  Mobile 
and  Ohio  Railway  must  not  enable  people  to  make 
their  living  by  raising  vegetables  on  the  large  tract  of 
land  between  Verona  and  Mobile,  except  on  the  pay- 
ment of  the  penalty  of  reducing  all  its  rates  between 
Verona  and  East  St.  Louis. 

Other  arguments  in  favor  of  such  rate  practices 
are  of  very  considerable  importance.  For  example, 
the  New  York  Evening  Post  has  most  pertinently 
said :  "  Old  prejudices  die  hard,  but  there  is  no  influ- 
ence so  fatal  to  them  as  united  commercial  interest. 
The  theory  may  be  hazarded  that  railroads,  refriger- 
ator cars  and  early  strawberries  and  asparagus  have 
done  far  more  to  render  the  politician's  '  waving  of  the 
bloody  shirt'  innocuous  and  unprofitable  in  this 
country  than  the  Spanish-American  War  itself ;  and 
have  discounted  in  influence  all  the  sermons  preached 
on  brotherly  love  since  the  Civil  War  ended.  These 
things  have  brought  about  a  movement  of  Northern- 
ers to  the  South."  And  yet,  when  some  one  com- 
plains of  the  rate  practices  by  means  of  which  the 
South  is  being  developed,  the  North  and  the  South 
are  being  reunited,  and  the  luxuries  of  the  last  genera- 
tion are  made  common  articles  of  diet  with  the  present 
generation,  the  Interstate  Commerce  Commission  can 
see  nothing  more  than  that  some  one  is  being  de- 
prived of  the  advantages  due  to  him  by  virtue  of  his 
geographical  position. 


THE  DECISIONS   OF   THE   COMMISSION  393 

In  1888  the  Northern  Pacific  Railroad  made  a 
group  rate  of  32.5  cents  per  100  pounds  on  wheat 
Group  Rates  in  shipped  to  Portland,  Ore,  from  any 
the  Northwest  con-  point  between  Connell,  Wash,  and 
demned  by  the        Julietta,  Ida.     This  group  rate,  cover- 

Cofpttttissioft 

ing  a  territory  of  2 1 5  miles,  the  railway 
made  in  order  that  it  might  "  sell  its  land  more  distant 
from  markets,  at  better  prices."  In  1891  some 
farmers  at  Ritzville,  located  within  the  group  district, 
and  about  90  miles  eastward  of  Connell,  petitioned 
the  Interstate  Commerce  Commission  to  order  that 
this  rate  be  16.25  cents,  alleging  that  the  rate 
of  32.5  cents  was  ''excessive,  unjust,  and  unreason- 
able."* 

The  Commission  broke  up  the  group  rate,  being 
influenced  by  several  considerations.  One  of  them 
was:  "The  practice  of  making  one  rate  on  the  same 
product  over  a  very  large  district,  and  thus  equalizing 
the  burdens  of  transportation  to  the  same  market, 
is  only  justifiable  under  special  and  exceptional  cir- 
cumstances. This  practice  is  not  to  be  encouraged 
when,  as  in  the  case  under  consideration,  the  dif- 
ference in  the  transportation  expense  from  the  various 
parts  of  such  district  is  considerable  and  substan- 
tial." 

A  further  reason  why  the  Commission  broke  into 
the  group  rate  was  that  a  group  rate  extending  over 

*  Interstate  Commerce  Reports,  Vol.  VI,  A.  S,  Newland  v.  The  North' 
em  Pacific  Railroad  Co.,  et  at. 


394  RAILWAY   RATES 

200  miles  "afforded  to  grain  growers,  hundreds  of 
miles  nearer  to  market,  no  compensation  for  the  ad- 
vantages of  their  location." 

We  thus  find  the  Interstate  Commerce  Commission 
breaking  up  group  rates,  or  postage-stamp  rates,  on 
the  Atlantic  seaboard,  in  the  Gulf  States  and  on  the 
Pacific  coast. 

In  consequence  of  the  fierceness  of  the  compe- 
tition between  the  railways  leading  from  the  trans- 
Commission  dis-  Mississippi  territory  to  the  Atlantic 
criminates  against  seaboard  ports  and  the  Gulf  ports  re- 
trans-Misstssippi  gpectively,  the  rates  on  com  for  export, 
in  1889,  became  13.5  cents  per  100 
pounds  from  the  Mississippi  River,  and  16  cents  from 
Chicago,  though  the  distance  from  the  Mississippi 
River  to  the  Atlantic  seaboard  was  116  per  cent  of  the 
distance  from  Chicago  to  the  Atlantic.  The  reason  for 
the  discrimination  in  favor  of  corn  raised  west  of  the 
Mississippi  River  and  against  corn  raised  east  of  the 
Mississippi  was  that  the  competition  of  the  Gulf 
lines  did  not  extend  to  the  carriage  of  the  latter  com. 
The  Interstate  Commerce  Commission  *  thereupon 
ordered  that  the  aggregate  rate  from  the  trans-Mis- 
sissippi farm  to  the  Mississippi  River  and  thence  to 
the  Atlantic  seaboard  must  never  become  less  than 
the  aggregate  rate  from  the  Illinois  farm  to  Chicago 
and  thence  to  the  Atlantic,  lest  Illinois  be  deprived 

*  Interstate  Commerce  Reports,  Vol.  VIII,  Export  Rates  from  Points 
East  and  West  of  the  Mississippi  River. 


THE  DECISIONS   OF   THE  COMMISSION  395 

of  "the  natural  advantage  of  her  geographical  loca- 
tion as  compared  with  the  trans-Mississippi  country." 
This  ruling  the  Commission  should  properly  have 
made  under  the  so-called  long-  and  short-haul  clause 
of  the  Act  to  Regulate  Commerce.  But  since  the 
Commission  could  not  make  that  ruling  under  the 
long-  and  short-haul  clause  as  construed  by  the  Su- 
preme Court,  it  made  the  ruling  under  the  clause 
which  forbids  the  railways  making  rates  which  shall 
subject  any  locality  "to  any  undue  or  unreasonable 
prejudice  or  disadvantage  in  any  respect  whatsoever." 
So  far  as  the  ruling  was  observed,  it  curtailed  the 
power  of  the  Atlantic  seaboard  lines  to  compete  with 
the  Gulf  lines,  and  correspondingly  deprived  the 
farmers  of  the  trans-Mississippi  country  of  the  benefit 
of  that  competition  —  that  is,  of  the  lowering  of  the 
minimum  of  the  cost  of  moving  corn  from  the  farm 
to  Liverpool.  These  obiter  dicta  of  the  Commission 
compel  the  conclusion  that,  if  the  Commission  had 
had  the  power,  it  would  have  prevented  the  rates 
from  the  Mississippi  from  becoming  lower  than  the 
rates  from  Chicago;  that  it  would  have  issued  an 
order  designed  to  conserve  to  Illinois  "all  the  natural 
advantage  of  her  geographical  location  as  compared 
with  the  trans-Mississippi  country,"  and  designed 
also  to  prevent  the  transfer  to  Omaha  and  other 
western  cities  of  any  part  of  the  grain  business  of 
Chicago.  In  other  words,  the  Commission  would 
have   precipitated   a   conflict   of   interests   between 


396  RAILWAY  RATES 

Illinois  and  the  trans-Mississippi  country,  between 
Chicago  and  Omaha  and  other  western  cities. 

Had  the  Interstate  Commerce  Commission  been 
established  at  the  close  of  the  Civil  War,  it  would  with 
cheerful  readiness  have  ruled  in  the  seventies  that 
to  New  York,  Pennsylvania  and  Ohio  must  be  con- 
served "all  the  natural  advantages  of  their  geographi- 
cal location  as  compared  with"  Kansas  and  Ne- 
braska, The  doctrine  suggested  in  the  New  York 
milk  case,  that  the  railways  must  not  make  the  rates 
on  milk  so  low  as  to  encourage  unduly  the  production 
of  milk,  would  have  been  developed  into  the  doctrine 
that  the  railways  must  not  bring  into  the  market  so 
much  western  wheat  as  to  depress  the  price  of  wheat 
in  the  world  markets  below  the  *'just  price";  and 
the  Commission  probably  would  have  ruled  that  $1.25 
a  bushel  was  the  ''just  price,"  since  that  was  the 
price  required  to  sustain  the  value  of  eastern  farm 
lands  at  the  level  of  1876, 


CHAPTER  VIII 

THE  DECISIONS   OF   THE   INTERSTATE   COMMERCE 
COMMISSION    (concluded) 

Pandora's  Box 

Let  us  consider  next  a  body  of  decisions  which 
show  the  poHtical  danger  inherent  in  the  exercise 
by  the  Government  of  the  power  to  fix  railway  rates. 

In  1 89 1  the  real  estate  operators  and  the  jobbing 
merchants  of  Minneapolis,  and  to  some  extent  the 
millers  of  Minneapolis,  became  alarmed  lest  Duluth 
should  impair  the  ascendency  of  Minneapolis  as  a 
milling  centre  and,  by  reflex  action,  as  a  jobbing 
centre,  for  the  farmer  tends  to  buy  his  supplies  where 
he  sells  his  produce  *  The  Mississippi  River  nc 
longer  furnished  all  the  power  needed  by  the  Minne- 
apolis mills,  and  the  cost  of  coal  was  $1.50  a  ton  more 
in  Minneapolis  than  in  Duluth,  because  the  latter 
city  was  located  directly  upon  Lake  Superior.  So 
far  as  the  future  growth  of  business  was  concerned, 
the  prospects  seemed  to  be  in  favor  of  Duluth.  That 
fact  was  expressed  in  the  Annual  Report  of  the  Trade 
and  Commerce  oj  Duluth,  for  1892,  in  the  statement 

*  TAe  Railroad  Gazette,  September  i8,  1891. 
397 


398  RAILWAY   RATES 

that  the  year  1892  would  long  be  remembered  as  the 
year  in  which  Duluth  ''toppled  over  the  framework 
of  preeminence  built  up  by  Minneapolis."  And  to 
that  statement  the  jobbing  merchants  had  added: 
"Duluth's  competitors  (Minneapolis  and  St.  Paul) 
may  kick  and  howl,  but  never  again  shall  they  see 
goods  delivered  from  the  eastern  seaboard  to  inland 
cities  (Minneapolis  and  St.  Paul)  as  cheaply  as  they 
are  brought  to  the  city  at  the  head  of  the  greatest 
stretch  of  inland  navigation  in  the  world."  The 
situation  thus  summed  up  appeared  so  serious  to 
Minneapolis  that  the  Chamber  of  Commerce,  "or- 
ganized to  advance  the  general  prosperity  and  busi- 
ness interests  of  the  city  of  Minneapolis,"  decided 
to  invoke  the  power  of  the  Federal  Government  to 
check  the  growth  of  its  boastful  rival.  Proctor  Knott's 
"Zenith  City  of  the  Unsalted  Seas." 

The  railways  of  the  Northwest,  after  much  warring 
of  rates,  had  agreed  upon  a  division  of  the  com- 
petitive grain  traffic  between  Duluth,  Minneapolis, 
Milwaukee  and  a  number  of  minor  points  lying  im- 
mediately to  the  west  of  Lake  Michigan.  That  divi- 
sion of  the  traffic  provided,  among  other  things,  that 
from  a  large  territory  in  North  and  South  Dakota  and 
Minnesota  the  rates  on  wheat  should  be  the  same  to 
Minneapolis  and  to  Duluth,  though  numerous  points 
in  the  territory  in  question  were  from  7  per  cent,  or 
20  miles,  to  30  per  cent,  or  106  miles,  nearer  to  Min- 
neapolis than  to  Duluth.     Of  these  equal  rates  the 


THE   DECISIONS   OF   THE   COMMISSION  399 

Chamber  of  Commerce  of  Minneapolis  complained 
before  the  Interstate  Commerce  Commission  *  alleg- 
ing that  they  subjected  Minneapolis  to  undue  and 
unreasonable  prejudice  and  disadvantage. 

The  Commission  ordered  that  the  rates  in  question 
be  made  from  7  per  cent  to  30  per  cent  lower  to  Min- 
„  ,  , .     „  neapolis  than  to  Duluth.   In  the  course 

Relative  Pros-  ^ 

perity  regulated     of  the  Opinion  the  Commission  said : 
by  a  Distance         ''j^  Can  hardly  be  doubted,  in  view  of 
'^^^■^  the  testimony,  that  under  the  present 

adjustment  of  rates  on  wheat  the  milling  interests  of 
Minneapolis,  and  with  them  its  general  prosperity, 
and  possibly  its  population,  must  decline.  So  far 
as  such  a  result  would  be  attributable  solely  to 
the  greater  natural  advantages  of  Duluth  as  a  point 
for  manufacture  and  shipment  of  flour,  nothing  per- 
haps could  properly  be  done  to  avert  it.  Duluth 
is  nearer  to  the  markets  than  Minneapolis,  and 
to  this  extent  its  advantages  cannot  and  ought  not 
to  be  denied  or  taken  from  it.  But  on  the  other 
hand,  Minneapolis  is  nearer  to  the  wheat  fields  than 
Duluth,  and  to  this  extent  it  is  entitled  to  the  advan- 
tage over  Duluth  which,  on  that  account,  should 
naturally  belong  to  it.  This  natural  advantage  is 
denied  to  Minneapolis  in  the  present  adjustment  of 
railroad  rates,  as  between  it  and  Duluth,  from  the 
wheat  fields.  ...     As  a  general  rule  it  is  probably 

*  Interstate  Commerce  Reports,  Vol.  V,  The  Chamber  of  Commerce  of 
Minneapolis  v.  The  Great  Northern  Railway  Co.,  et  al. 


400  RAILWAY   RATES 

true  that  rates  should  not  be  proportioned  strictly 
to  mileage,  .  .  .  This  is  due  largely  to  the  fact  that 
the  terminal  expenses  which  do  not  vary  with  dis- 
tance constitute  a  considerable  part  of  the  entire 
charge  in  either  case  and  operate  to  reduce  the  ton- 
mile  rates  on  a  longer  haul. 

"  But  this  consideration  in  the  present  case  seems  to 
be  fully  balanced,  perhaps  more  than  balanced,  by 
the  fact  that  hack-loading,  which  is  also  a  powerful 
element  in  the  establishment  of  rates,  is  so  much  more 
certain,  and  the  west-bound  traffic  so  much  more 
profitable,  from  Minneapolis  than  from  Duluth." 

At  the  very  moment  when  the  Commission  thus 
reckoned  the  ascendency  of  Minneapolis  over  Duluth, 
in  the  matter  of  heavier  shipments  of  general  mer- 
chandise westward,  as  a  salient  circumstance  or  con- 
dition toward  the  proper  determination  of  rates,  the 
railways  and  the  merchants  of  Duluth  were  moving 
heaven  and  earth  to  overcome  that  ascendency.  In 
fact,  at  that  very  moment,  ''a  vast  proportion  of  the 
coal,  salt,  lime,  cement,  heavy  iron  and  hardware, 
sugar  and  other  staple  groceries,  received  and  stored 
in  Duluth,  were  received  and  stored  there  on  account 
of  St.  Paul  and  Minneapolis  merchants,  who  deliv- 
ered their  merchandise  to  their  customers  from  their 
Duluth  warehouses."  * 

In  this  case  the  Commission  undertook  to  regulate 

*  Annual  Report  of  the  Trade  and  Commerce  of  Duluth,  for  the  year 
1892. 


THE   DECISIONS   OF  THE   COMMISSION  401 

the  relative  prosperity  and  the  relative  rates  of  growth 
of  two  great  cities;  and  for  that  purpose  it  ordered 
the  adjustment  of  rates  on  a  distance  basis  absolutely. 
What  it  had  to  say  about  back-loading  was  an  after- 
thought, brought  in  to  support  its  ruling  after  it  had 
made  up  its  mind  what  that  ruling  should  be.  Its 
reasoning  upon  this  point  also  was  so  loose  that  it 
cannot  be  deemed  to  constitute  an  argument.  And 
finally,  in  a  similar  decision  rendered  shortly  after- 
ward, the  Commission  made  no  use  of  the  back-haul 
argument.* 

If  Milwaukee,  Duluth  and  the  other  northwestern 
cities  had  imitated  the  course  taken  by  Minneapolis, 
all  the  rates  in  the  Northwest  would  have  had  to  be 
readjusted.  For  the  Commission's  adjustment  of 
rates  on  a  mileage  basis  pure  and  simple  would  have 
given  Duluth  the  advantage  over  Minneapolis  in 
certain  territory  northwest  of  Minneapolis,  and 
would  have  given  Milwaukee  the  advantage  over 
Minneapolis  in  certain  regions  southwest  of  Minne- 
apolis. It  would  appear  that  Minneapolis  itself  ulti- 
mately had  come  to  realize  that  fact.  For  in  1905 
Mr.  Congressman  Stevens,  of  Minnesota,  a  member 
of  the  Committee  on  Interstate  and  Foreign  Com- 
merce of  the  House  of  Representatives,  stated  that  the 
Chamber  of  Commerce  of  Minneapolis  had  informed 


*  Interstate  Commerce  Reports,  Vol.  VII,  Chamber  of  Commerce  of  the 
City  of  Milwaukee  v.  Chicago,  Milwaukee  and  St.  Paul  Railway  Co., 
et  a  I, 


402  RAILWAY  RATES 

him  that  it  had  requested  that  the  Commission's 
order  be  not  enforced,  "for  the  reason  that  if  the  same 
pohcy  were  pursued  (by  the  other  cities)  MinneapoHs 
would  get  no  advantage  from  the  southwestern  trade 
and  Duluth  would  get  all  the  advantage  from  the 
northwestern  trade."  * 

The  doctrine  that  disputes  arising  out  of  the  trade 
jealousies  of  rival  business  centres  are  to  be  settled 
by  the  application  of  the  distance  tariff  would  lead  to 
the  readjustment  of  the  entire  interstate  commerce  of 
the  United  States,  and  to  the  destruction  of  an  enor- 
mous percentage  of  the  existing  trade  relations.  To 
illustrate,  the  distance  from  Chicago  and  Milwaukee 
to  St.  Paul  is  about  half  the  distance  from  St.  Louis 
to  St.  Paul.  Yet  the  rates  from  St.  Louis  to  St.  Paul 
are  only  5  per  cent  in  excess  of  the  rates  from  Chicago 
and  Milwaukee  to  St.  Paul.  On  low-grade  freight 
the  advantage  of  Chicago  and  Milwaukee  is  less  than 
I  cent  per  100  pounds,  "and  that  is  very  aggravat- 
ing to  the  people  interested  in  shipping  from  Mil- 
waukee to  St.  Paul."  f  If  the  Esch-Townsend  Bill 
should  become  the  law,  and  thereupon  Milwaukee 
should  bring  a  complaint  before  the  Interstate  Com- 
merce Commission,  that  body  would  be  bound  to 
make  a  ruling  that  would  exclude  St.  Louis  from  the 


*  Hearings  before  the  Committee  on  Interstate  and  Foreign  Commerce 
of  the  House  of  Representatives,  1905,  p.  343. 

t  Hearings  before  the  Committee  on  Interstate  and  Foreign  Commerce 
of  the  House  of  Representatives,  1902,  p.  387,  Mr.  A.  C.  Bird,  Third  Vice- 
President,  Chicago,  Milwaukee  and  St.  Paul  Railway. 


THE  DECISIONS   OF  THE   COMMISSION  403 

trade  of  St.  Paul.  If  the  Commission  should  decline 
to  follow  the  precedent  established  in  the  decision 
just  reviewed,  we  should  no  longer  have  a  govern- 
ment of  laws,  but  should  have  a  government  of  men. 
Our  interstate  commerce  would  be  regulated,  not  in 
accordance  with  law,  but  by  the  dispensing  power  of 
the  Interstate  Commerce  Commission. 

Shortly  after  the  foregoing  decision  had  been  made 
the  Chamber  of  Commerce  of  Milwaukee  asked  the 
Interstate  Commerce  Commission  *  to  secure  to  it 
that  advantage  due  to  it  by  virtue  of 
LtLf/ealoulf  ^hc  fact  that  Milwaukee  was  nearer 
to  certain  wheat-growing  areas  in 
Minnesota  and  Iowa  than  was  Minneapolis.  The 
Commission,  adopting  once  more  the  mileage  test, 
ordered  that  the  rates  be  readjusted  to  the  advantage 
of  Milwaukee  and  to  the  disadvantage  of  Minneapolis. 

Before  the  Committee  on  Interstate  and  Foreign 
Commerce  of  the  House  of  Representatives,  Mr.  A. 
C.  Bird,  vice-president  of  the  so-called  Gould  lines, 
on  January  23,  1905,  gave  an  exceedingly  instructive 
account  of  this  contest  between  Milwaukee  and  Min- 
neapolis.f  Said  Mr.  Bird:  "The  case  was  heard, 
perhaps  three  times  —  at  least  twice.  It  was  thor- 
oughly discussed  in  a  liberal  manner,  in  a  friendly 


*  Interstate  Commerce  Reports,  Vol.  VII,  Chamber  of  Commerce  of  the 
City  of  Milwaukee  v.  Chicago,  Milwaukee  and  St.  Paul  Railway  Co.,  et  al. 

t  Compare :  Hearings  before  the  Committee  on  Interstate  and  Foreign 
Commerce  of  the  House  of  Representatives,  1902,  p.  386,  Mr.  A.  C.  Bird, 
Third  Vice-President,  Chicago,  Milwaukee  and  St.  Paul  Railway. 


404  RAILWAY  RATES 

spirit,  between  the  Commissioners  and  the  railroad 
people.  There  was  no  bitterness  manifested.  There 
was  bitterness,  however,  between  the  rival  chambers 
of  commerce.  It  was  a  fight  for  supremacy;  it  was 
a  fight  which  is  going  on  all  over  this  broad  land. 
Finally  the  railroad  companies  told  the  Commission : 
'  We  cannot  do  it ;  you  have  laid  down  a  rule  for  us  to 
determine  the  differential.  We  are  perfectly  satisfied 
to  accept  your  rule,  but  we  cannot  apply  it  practically. 
There  are  difficulties  with  the  geography  of  the  rail- 
roads that  prevent  a  reasonable  adjustment  of  the 
rate,  prevent  such  an  adjustment  as  everybody  has  a 
right  to  expect.  Therefore,  if  the  Commission  will  fix 
the  tariffs  from  all  this  producing  territory  to  Mil- 
waukee and  Minneapolis,  respectively,  we  will  put 
them  into  effect;  we  will  put  in  force  these  rates.' 
And  the  Commission  said  they  were  not  competent 
to  do  that. 

"Now,  following  that,  the  railroad  companies  made 
another  proposition.  'We  will  select  one  or  two  or 
three  members  from  each  of  these  boards  of  trade  or 
chambers  of  commerce,  and  if  they  will  agree  upon 
these  tariff  rates  we  will  adopt  those  rates.'  And 
the  effort  was  made.  That  committee  did  agree  in 
a  restricted  territory.  .  .  .  But  they  utterly  failed  to 
agree  in  the  whole  territory,  and  neither  party  was 
satisfied  and  nothing  was  done,  and  that  case  has 
not  been  settled."  That  is,  although  the  Commission 
had  made  its  order  in  January,  1898,  in  January, 


THE   DECISIONS   OF   THE   COMMISSION  405 

1905,  the  several  chambers  of  commerce  had  not 
reached  an  agreement,  the  railway  companies  hav- 
ing agreed  to  accept  whatever  the  chambers  of  com- 
merce should  agree  upon.  In  other  words,  there  was 
a  complete  parallel  to  the  situation  in  Germany,  where 
abound  deadlocks  of  interest  that  last  for  decades. 

Mr.  Bird  continued:  "I  want  to  impress  upon 
your  minds,  and  repeat  in  every  possible  way,  the 
fact  that  the  whole  country,  from  ocean  to  ocean  and 
from  the  Gulf  to  the  northern  boundaries  of  the  coun- 
try, is  covered  with  trade  bodies,  each  one  fighting  for 
supremacy  —  not  what  the  law  grants  to  them,  but 
what  they  think  they  can  get  by  overpersuasion,  by 
ingenious  argument.  There  is  just  as  much  cruelty, 
just  as  much  lack  of  honor,  just  as  much  lack  of  inter- 
est in  other  people's  rights  between  communities  as 
there  is  anywhere  between  individuals.  Now  the 
passage  of  this  law  (Esch-Townsend  Bill)  would  open 
the  box.  The  country  would  be  covered  from  ocean 
to  ocean  by  these  complaints,  and  I  say  that  it  is  not 
in  the  power  of  any  commission  that  may  be  appointed 
to  justly  adjudicate  or  attempt  to  settle  these  ques- 
tions without  working  an  evil  upon  the  commerce  of 
this  country.  ..." 

In  1889,  the  Chicago  Board  of  Trade,  being  alarmed 
opposition  to  the  ^t  the  growth  of  the  pork-packing  busi- 
Westward  Trend  ness  at  Kansas  City,  St.  Joseph,  Leav- 
of  Industry  enworth,    Atchison,     Omaha,     Sioux 

City  and  other  Missouri  River  points,   appealed   to 


406  RAILWAY   RATES 

the  Interstate  Commerce  Commission  for  relief.* 
It  alleged  that  the  railways  were  subjecting  Chicago 
to  an  undue  disadvantage,  by  charging  more  for  the 
carriage  of  hogs  from  the  aforesaid  Missouri  River 
points  to  Chicago  than  for  the  carriage  of  dressed 
pork  and  other  hog  products.  It  went  on  to  state 
that  the  yield  of  a  hog  in  product  was  about  72  per  cent 
of  the  live  weight,  and  petitioned  that  the  rate  on  live 
hogs  should  be  ordered  to  be  72  per  cent  of  the  rate 
on  hog  products.  The  Commission  ruled  that  the 
practice  of  the  railways  in  charging  more  for  the  car- 
riage of  live  hogs  than  for  the  carriage  of  hog  products 
was  in  violation  of  the  third  section  of  the  Act  to  Regu- 
late Commerce,  in  that  it  constituted  an  unjust  dis- 
crimination in  favor  of  one  kind  of  traffic  and  an 
unlawful  prejudice  against  another,  and  also  sub- 
jected Chicago  and  the  packers  at  Chicago  to  an 
unlawful  prejudice.  It  ordered  that  the  rates  on  live 
hogs  be  made  no  greater  than  the  rates  on  dressed 
hogs  —  which  appears  to  have  been  a  compromise 
between  the  practice  of  the  railways,  in  charging  more 
for  the  carriage  of  hogs  than  for  the  carriage  of  hog 
products,  and  the  demand  of  the  Chicago  Board  of 
Trade,  that  the  rate  on  hogs  be  made  72  per  cent  of 
the  rate  on  hog  products. 

The  Commission,  in  the  course  of  its  opinion,  stated 
that  "the  carriers,  after  filing  their  answers,  took  no 

*  Interstate  Commerce  Reports,  Vol.  IV,  The  Board  of  Trade  of  the 
City  of  Chicago  v.  The  Chicago  and  Alton  Railroad  Co.,  et  al. 


THE   DECISIONS   OF   THE   COMMISSION  407 

further  part  in  the  controversy,  seeming  to  feel  reluc- 
tant to  become  active  in  the  controversy  between 
those  who  were  their  patrons  on  a  large  scale,  and 
leaving  the  matters  involved  to  the  judgment  of  the 
Commission.  But  the  intervenors  were  represented 
by  counsel  throughout,  and  presented  their  views  as 
well  as  the  defence  set  up  by  the  carriers,  both  by  the 
evidence  as  well  as  in  argument."  Among  the  inter- 
venors was  the  Honorable  Board  of  Railroad  Com- 
missioners of  the  State  of  Iowa. 

The  intervenors  maintained  that  the  growth  of 
pork  packing  at  the  Missouri  River  points,  with  its 
decrease  at  Chicago,  was  the  result  of  natural  forces 
of  trade  which  caused  manufacturers  to  move  their 
establishments  to  the  source  of  supply.  They  pointed 
out  that  at  the  outbreak  of  the  Civil  War  the  centre 
of  the  pork-packing  industry  had  been  at  Cincinnati, 
that  it  had  moved  to  Chicago  with  the  westward 
movement  of  the  corn  belt,  and  that  it  was  now  on  its 
way  to  the  Missouri  River. 

A  large  number  of  the  orders  of  the  Interstate 
Commerce  Commission  rest  in  great  measure  upon 
the  doctrine  that  each  locality  is  entitled  to  the  ad- 
vantage accruing  to  it  from  its  geographical  position ; 
but  in  the  case  under  review  the  Commission  declined 
to  apply  that  doctrine.  It  said:  "A  business  like 
that,  involving  the  preparation  for  and  the  consump- 
tion of  such  a  large  and  leading  staple  and  necessary 
of  life  as  meat,  with  all  the  competition  that  exists 


408  RAILWAY  RATES 

for  it,  is  too  large  to  be  done  in  a  corner.  It  is  not 
entirely  a  new  thing,  and  perhaps  is  very  natural, 
for  those  located  near  where  a  great  staple  is  grown, 
to  think  that  they  have  peculiar  rights  to  railroad 
rates  in  the  marketing  of  that  staple,  growing  out  of 
what  they  call  their  'geographical  position  and  ad- 
vantage.' .  .  .  But  we  are  forced  to  the  conclusion 
that  this  is  too  large  a  business  to  be  done  upon  such 
narrow  lines." 

To  have  the  State  Railroad  Commission  of  Iowa 
announce  that,  by  virtue  of  natural  right  growing  out 
of  geographical  position,  the  hogs  of  Iowa  should 
be  slaughtered  in  Iowa,  and  to  have  the  Federal 
Interstate  Commerce  Commission  repudiate  that 
doctrine,  must  indeed  have  been  disconcerting  to 
those  students  of  the  railway  problem  who  believed 
that  one  has  but  to  vest  men  with  the  authority  of 
public  office  to  enable  them  to  see  where  lies  the 
truth  in  these  questions  of  conflict  of  trade  interests 
and  sectional  interests. 

In  May,  1905,  Hon.  Albert  B.  Cummins,  Gov- 
ernor of  Iowa,  appeared  before  the  Committee  on 
Interstate  Commerce  of  the  Senate  of  the  United 
States,  supporting  the  proposition  that  ''Congress 
shall  invest  a  commission,  composed  of  men  com- 
petent to  perform  the  grave  and  responsible  duties 
charged  upon  them,  with  the  authority  to  fix  a  rail- 
road rate  instead  of  one  established  by  the  rail- 
ways.  ..."     He  said:    "I  ought  not  to  consume 


THE  DECISIONS   OF  THE   COMMISSION  409 

your  time  in  citing  particular  instances  of  discrimina- 
tion. Bear  with  me,  however,  while  I  make  a  gen- 
eral observation.  Iowa  is  an  agricultural  State. 
Nothing  can  dispute  her  claim  of  superiority  in  that 
respect.  Why  is  it  that  she  is  not  also  a  manufac- 
turing State?  Her  chief  raw  materials  are  corn, 
cattle  and  hogs.  It  is,  I  understand,  a  sound  rule 
in  industrial  economy  that,  if  other  things  are  equal, 
the  manufactory  should  be  as  close  to  the  raw  mate- 
rial as  possible."  The  witness  apparently  had  for- 
gotten that  the  Interstate  Commerce  Commission 
had  rejected  that  doctrine ;  and  had,  furthermore,  put 
upon  the  long-  and  short-haul  clause  of  the  Act  to 
Regulate  Commerce  a  construction  which,  if  enforced, 
would  have  transferred  to  Chicago  a  large  part  of 
the  jobbing  trade  of  Dubuque,  Davenport  and  other 
Iowa  jobbing  centres. 

The  spirit  that  prompted  the  decision  made  by 
the  Interstate  Commerce  Commission  in  The  Board 
of  Trade  of  Chicago  v.  The  Chicago  and  Alton  Rail- 
road Co.,  in  the  seventies,  would  have  prompted  the 
disapproval  of  the  railroad  rates  made  in  connection 
with  the  transfer  of  the  packing  industry  from  Buf- 
falo to  Chicago,  and  of  those  incident  to  the  transfer 
of  the  flour-milling  industry  from  Rochester  to  Mil- 
waukee and  Chicago.  These  rates  seemingly  dis- 
criminated against  Buffalo  and  Rochester,  but  only 
seemingly.  Irresistible  and  impersonal  commercial 
and  industrial  forces  had  decreed  the  migration  west- 


410  RAILWAY   RATES 

ward  of  the  flour-milling  and  pork-packing  industries ; 
and  the  rates  made  as  incidents  of  that  transfer  had 
been  a  result,  not  a  cause. 

In  Anthony  Salt  Co.,  et  al.,v.  The  Missouri  Pacific 
Railway  Co.,  et  al.,*  the  Interstate  Commerce  Com- 
mission prescribed  the  relation  that 

"  Reasons "  for  i        i  i        ,       •         i  i 

Discrimination  by  should  obtam  between  the  rates 
the  Commission  charged  for  the  carriage  of  salt  from 
against  Michigan    different  points  in  the  United  States  to 

Salt  , 

a  common  market,  Fort  Worth,  Texas. 
In  this  case  the  ruling  was  made  on  the  principle  of 
the  distance  tariff.  The  Atchison,  Topeka  and  Santa 
Fe  Railroad  was  operating  lines  from  St.  Louis  to 
Fort  Worth  and  other  so-called  Texas  common  points, 
as  well  as  a  line  from  Hutchinson,  Kan.,  to  Fort 
Worth  and  Texas  common  points.  It  was  hauling 
Michigan  salt  from  St.  Louis  to  Fort  Worth,  a  dis- 
tance of  743  miles,  for  35 1  cents  a  hundred  pounds, 
and  Kansas  salt  from  Hutchinson  to  Fort  Worth,  a 
distance  of  427  miles,  for  the  same  rate.  The  Com- 
mission found  that  this  "was  hauling  Michigan  salt 
a  distance  of  316  miles  without  charge."  It  said 
that,  "while  many  other  considerations  than  distance 
may  be  considered  in  determining  what  shall  consti- 
tute a  proper  rate,  yet  in  this  case  nothing  is  shown 
to  justify  the  apparent  discrepancy  of  charge,  and  it 
is  believed  to  work  an  undue  preference  to  Michigan 
salt  over  Kansas  salt  going  to  Texas  and  southerly 
points. 

*  Interstate  Commerce  Reports,  Vol.  V. 


THE   DECISIONS   OF   THE   COMMISSION  411 

"It  can  hardly  be  disputed  that  there  is  here  a 
disadvantage  brought  about  to  the  Kansas  salt, 
and  a  preference  given  to  the  Michigan  salt,  both 
undue  and  unreasonable.  .  .  .  We  think  that, 
in  all  this  territory,  where  the  Texas  points  are  as 
near  to  Hutchinson  as  to  St.  Louis,  the  Kansas 
salt  should,  by  a  rearrangement  of  rates,  be  carried 
for  an  equal  charge,  and  where  Hutchinson  is 
nearer  than  St.  Louis,  the  Kansas  salt  should  have 
the  reasonable  advantage  of  its  proximity  to  the 
market.  .  .  . 

"We  therefore  order  and  direct  that  the  maximum 
rate  on  salt  from  Hutchinson  to  Galveston  and  Texas 
common  points  be  fixed  at  27  cents  per  hundred 
pounds  so  long  as  the  rate  on  salt  from  St.  Louis  to 
Texas  points  is  fixed  at  35^  cents  per  hundred  pounds, 
and  that  the  relation  and  proportion  be  hereafter 
maintained  between  rates  on  salt  from  St.  Louis 
and  Hutchinson  to  Texas  common  points  as  hereby 
established." 

The  J.  Commission's  finding  that  "nothing  was 
shown  to  justify  the  apparent  discrepancy  of  charge" 
between  St.  Louis  and  Fort  Worth  and  Hutchinson 
and  Fort  Worth,  was  based  on  the  alleged  fact  that 
both  lines  were  operated  under  substantially  similar 
conditions  as  to  density  of  traffic,  opportunity  for 
obtaining  back-loads  and  physical  condition  of  the 
roads.  But  here  again  the  Commission's  reasoning 
was  so  loose  that  one  cannot  escape  saying  that  the 


412  RAILWAY  RATES 

Commission  merely  made  an  unsupported  assertion, 
not  an  argument. 

Virtually  disregarding  the  fact  that  the  Michigan 
salt  paid  8  cents  a  hundred  pounds  to  reach  St.  Louis 
(where  large  quantities  of  salt  from  Michigan  and 
New  York  are  always  kept  on  hand  for  distribution 
to  the  West  and  the  Southwest),  the  Commission 
said:  "St.  Louis,  for  the  purpose  of  this  inquiry, 
may  be  treated  as  the  point  of  origin  of  Michigan 
salt,  the  cost  of  getting  it  to  the  distributing  point 
being,  perhaps,  an  element  of  the  original  cost  of  the 
article  in  preparation  for  market."  This  handicap 
of  8  cents  on  ^Michigan  salt  the  Commission  in- 
creased by  an  additional  8J  cents,  when  it  ordered 
that  the  Hutchinson- Galveston  rate  should  be  27  cents 
so  long  as  the  St.  Louis-Galveston  rate  continued 
to  be  35^  cents.  That  total  handicap  of  16 J  cents  must 
have  been  a  serious  one ;  for,  according  to  the  Com- 
mission's own  finding,  the  initial  cost  of  production 
of  ^Michigan  salt  was  only  5  cents  per  280  pounds 
less  than  that  of  Kansas  salt.  If  the  Commission  is 
to  be  at  liberty  to  assume  that  Michigan  salt  is  mined 
at  St.  Louis,  it  is  difficult  to  see  where  its  power  to 
make  assumptions  is  to  stop,  and  why  it  should  con- 
tmue  to  give  any  reasons  for  its  decisions.  It  would 
seem  to  be  sufficient  that  the  Commission  simply 
issue  its  orders. 

In  1 86 1  the  Michigan  salt  fields  had  produced 
125,000  barrels  of  salt,  which  output  by  1875  had 


THE   DECISIONS   OF   THE   COMMISSION  413 

been  increased  to  1,000,000  barrels,  and  by  1890  had 
reached  4,000,000.  The  Kansas  salt  fields,  opened 
in  1888,  were  producing  in  less  than  3  years  1,000,000 
barrels  a  year,  or  one- twelfth  of  the  total  amount 
consumed  in  the  United  States.  These  figures  show 
conclusively  that  the  Kansas  salt  industry  was  not 
suffering  or  being  suppressed  through  maladjusted 
railway  rates. 

If  the  Federal  Government  is  to  be  called  upon  to 
regulate  the  competition  in  Texas  of  Kansas  and 
Th  Menace  to  Michigan  salt,  there  is  no  reason  why 
Trade  implied  in  it  should  not  be  Called  upon  to  regu- 
Reguiation  of        \2Xq  t}ie  competition  in  Texas  or  any- 

Competition  ■,  ^  n        .^  j  r 

where  else  of  cotton  goods  manufac- 
tured respectively  in  Massachusetts  and  Carolina ;  of 
boots  and  shoes  manufactured  respectively  in  Mas- 
sachusetts, Illinois,  Ohio  and  Missouri;  of  steel  and 
iron  manufactured  respectively  in  Alabama,  Mary- 
land, Pennsylvania,  Illinois  and  Colorado ;  or,  in  the 
treeless  States  of  the  Missouri  River  valley,  of  lum- 
ber cut  respectively  in  Arkansas,  Georgia,  Michigan 
and  Oregon.  In  fact,  there  is  no  commerce  in  the 
United  States  that  is  large  enough  to  be  worth  quar- 
relling over  that  the  Federal  Government  might  not 
be  called  upon  to  regulate. 

Under  the  Act  to  Regulate  Commerce  the  question 
of  the  relative  reasonableness  of  the  rates  charged 
from  different  producing  or  distributing  centres  to 
common  markets,  could  be  brought  before  the  Inter- 


414  RAILWAY  RATES 

state  Commerce  Commission  only  in  those  cases  in 
which  the  same  railway  system  was  operating  railway 
lines  from  each  of  those  different  producing  centres  to 
the  common  market.  But  should  the  Esch-Townsend 
Bill  become  the  law  of  the  land,  then  it  would  be  pos- 
sible to  bring  before  the  Commission  the  question  of 
the  relative  reasonableness  of  any  and  all  rates  from 
rival  producing  centres  to  common  markets.  Let  us 
consider  what  might  have  happened,  had  the  Act  to 
Regulate  Commerce  conferred  upon  the  Interstate 
Commerce  Commission  the  wide  powers  which  the 
Esch-Townsend  Bill  proposes  to  confer  upon  the 
Commission.  Lumber  is  carried  from  the  south- 
western lumber-producing  regions  to  Chicago,  a  dis- 
tance of  1340  miles,  for  24  cents  a  hundred  pounds. 
That  rate  was  established  some  20  years  ago  "on 
commercial  considerations"  —  that  is,  in  order  to 
enable  the  yellow  pine  of  the  Southwest  to  compete 
in  Chicago  with  the  white  pine  brought  a  compara- 
tively short  distance  from  Minnesota  and  Wiscon- 
sin. Lumber  is  brought  from  Oregon  to  Chicago, 
a  distance  of  2240  miles,  for  40  cents  a  hundred; 
and  from  Ferguson,  S.C.,  to  Chicago,  a  distance 
of  700  miles,  for  28  cents.  All  of  these  rates  are 
adjusted  with  a  view  to  enabling  the  several  lum- 
ber-producing regions  to  obtain  such  proportions  of 
the  Chicago  lumber  business  as  the  several  sets  of 
railways  and  their  respective  customers  —  the  lumber 
manufacturers  —  have  after   much  fighting  agreed 


THE   DECISIONS    OF   THE   COMMISSION 


415 


upon  as  the  best  compromise  that  can  be  made. 
That  is,  the  rates  have  been  adjusted  on  commer- 
cial considerations  exclusively.  Similar  adjustments 
obtain  from  Oregon,  from  the  so-called  Spokane 
country,  from  Texas  and  Arkansas,  from  Louisiana, 
from  Alabama  and  from  South  Carolina,  to  the  so- 
called  treeless  States  of  the  Mississippi  Valley,*  to 
Ohio  and  to  many  other  [parts  of  the  United  States. 
Under  these  adjustments  of  rates  the  Great  Northern 
Railroad  has  built  up,  since  1890  or  thereabouts,  a 
lumber  traffic  which  now  amounts  to  four  train-loads 
a  day  across  the  Cascade  Mountains.  And  because 
that  east-bound  lumber  traffic  is  of  such  proportions 
that  the  Great  Northern  Railroad  is  absolutely  cer- 
tain of  a  return  load  of  lumber  for  every  car  that 
reaches  the  Pacific  coast  laden  with  freight  carried 
westward  from  Duluth  and  St.  Paul,  the  Great  North- 
ern Railroad  for  some  years  past  has  been  making 
rates  on  American  manufactures  going  to  the  Orient, 
—  in  competition  with  British,  Belgian  and  German 

*  Hearings  before  the  Committee  on  Interstate  Commerce,  United  States 
Senate,  May  I2,  1905,  p.  59. 


Minneapolis  to  Omaha    .     . 
Burlington  to  Omaha       .     . 
Texarkana  to  Omaha  .     .     . 
San  Francisco  to  Omaha 
Pecan  Grove,  La.,  to  Omaha 


Distance 


Miles 

368 

290 

683 

1832 

1218 


Cents 
18.0 

"•5 
23.0 
50.0 
23.0 


Rate  per 
Ton-mile 


Cents 
0.98 
0.86 
0.67 

0-55 
0.38 


416  RAILWAY  RATES 

manufactures,  —  that  are  only  50  per  cent,  and  in 
some  cases  less  than  50  per  cent,  of  what  they  would 
be,  were  it  not  for  the  existence  of  a  back-load  in 
lumber*  In  other  words,  the  success  with  which 
the  American  manufacturer  competes  in  Asiatic 
markets  with  the  British,  Belgian  and  German 
manufacturers  is  due  to  the  existence  of  a  lumber 
trade  between  the  Pacific  coast  and  the  territory  east 
of  the  Cascade  Mountains  —  a  trade  that  exists 
only  by  virtue  of  daily  violation  of  the  doctrine  laid 
down  by  the  Interstate  Commerce  Commission  in 
Anthony  Salt  Co.  v.  Missouri  Pacific  Railway  Co., 
and  in  numerous  other  cases,  that  no  one  may  be 
deprived  of  the  advantages  accruing  to  him  by  virtue 
of  his  geographical  position.  Had  the  timber  cutters 
of  Minnesota,  Wisconsin,  South  Carolina,  Alabama, 
Louisiana,  Texas  and  Arkansas  not  been  denied  a 
part  of  the  advantage  of  their  geographical  location, 
Oregon  would  be  sending  little,  if  any,  lumber  across 
the  Cascade  Mountains,  and  the  Suez  Canal  Com- 
pany would  not  have  been  obliged  to  lower  its  tolls 
on  January  i,  1903,  —  the  first  reduction  made  since 
1892  ;t  for  the  American  manufacturer  would  not 
be  pressing  hard  the  British,  Belgian  and  German 
manufacturers,  who  ship  to  Asiatic  ports  by  way  of 
the  Suez  Canal. 


*  TAe  Sun  (New  York),  June  8,  1902:  report  of  a  speech  made  at 
Chicago  by  Mr.  James  J.  Hill. 

t  ZeiUchriftfuer  Binnenschiffahrt,  1902,  Heft  24. 


THE  DECISIONS   OF  THE  COMMISSION  417 

In  Colorado  Fuel  and  Iron  Company  v.  The  South- 
ern Pacific  Co.,  et  al.^  the  Interstate  Commerce  Com- 
mission employed  the  distance  tariff  and  ordered 
that  the  rates  on  iron  and  steel  articles  shipped  from 
Pueblo,  Colo.,  to  San  Francisco  should  not  exceed 
75  per  cent  of  the  rates  charged  from  Chicago  to  San 
Francisco.  What  tremendous  weight  the  Commis- 
sion lays  upon  the  doctrine  of  geographical  position 
is  further  revealed  in  the  fact  that  the  Commis- 
sion in  this  case  said:  "The  offsetting  of  natural  dis- 
advantages of  a  business  at  one  place  as  compared 
to  a  like  business  at  another,  by  discrimination  in 
freight  charges,  is  inconsistent  with  the  equality 
provisions  of  the  statute.  Therefore  the  excess  of 
cost  to  the  complainant  in  manufacturing  its  products 
at  Pueblo  over  that  to  its  competitors  in  other  lo- 
calities (Joliet,  111.),  by  reason  of  inferiority  of  its 
coal  and  iron  ore,  the  structure  or  condition  of  its 
plant  and  cost  of  labor,  or  other  like  causes,  is  not 
to  be  considered  in  ascertaining  the  rightful  rela- 
tive adjustment  of  rates  from  such  places,  though 
such  facts  may  emphasize  the  necessity  to  complain- 
ant's business  of  the  removal  of  undue  artificial  bar- 
riers t  added  to  natural  disadvantages." 

In  Merchants'  Union  of  Spokane  Falls  v.  The 
Northern  Pacific  Railroad  Company,^  the  Commis- 

*  Interstate  Commerce  Reports,  Vol.  VI. 

t  That  is,  failure  to  adjust  relative  rates  on  the  bases  of  relative  dis- 
tances. 

J  Interstate  Commerce  Reports,  Vol.  V. 

2E 


418  RAILWAY  RATES 

sion  ordered  that  the  relative  rates  from  St.  Paul  to 

Spokane  and  to  Pacific  coast  points  respectively  be 

adjusted  on  the  basis  of  the  distance 

TartW  versus  the  ^^^i^'  ^^  ^^  ^ase  of  all  those  commodi- 
Basing-point  Sys-  tics  that  were  not  subject  to  ocean 
tern  in  Transcon-  competition.  It  Ordered  that  the  rates 
from  St.  Paul  to  Spokane  should  not 
exceed  82  per  cent  of  the  rates  to  Pacific  coast  points. 
This  ruling  greatly  offended  the  cities  of  Seattle,  Ta- 
coma,  Portland  and  San  Francisco,  for  it  gave  St.  Paul, 
Chicago,  St.  Louis  and  other  eastern  cities  an  advan- 
tage over  the  Pacific  coast  cities  in  the  competition  for 
the  trade  with  Seattle  and  surrounding  territory.  It 
overthrew  the  past  adjustment  of  rates  w^hich  had  made 
the  sum  of  the  through  rate  from  St.  Paul  to  Seattle  and 
the  local  rate  from  Seattle  back  to  Spokane  the  same 
as  the  rate  from  St.  Paul  to  Spokane — an  adjustment 
which  had  placed  on  a  footing  of  equality,  in  the  com- 
petition for  the  trade  of  Spokane,  the  merchants  of 
Spokane,  the  merchants  of  the  Pacific  coast  cities 
and  the  merchants  of  the  cities  between  the  Missouri 
River  and  the  Atlantic  seaboard. 

This  order  of  the  Commission  was  not  sustained 
in  the  federal  courts ;  *  but  Chicago,  St.  Louis  and 
other  cities  continued  the  agitation  against  the  low 
transcontinental  rates  to  the  Pacific  coast  cities. 
This  explains  the  following  despatch  from  San 
Francisco,  published  in  the  Boston  Herald  of  October 

*  Federal  Reporter,  Vol.  83,  p.  249. 


THE   DECISIONS   OF   THE   COMMISSION  419 

24,  1899.  "The  Pacific  Coast  Jobbers'  and  Manu- 
facturers' Association  has  been  organized  in  this 
city.  .  .  .  On  the  executive  committee  are  promi- 
nent merchants  of  this  city,  Seattle,  Tacoma,  Port- 
land, Sacramento,  Los  Angeles  and  Marysville. 

"The  new  association  will  endeavor  to  protect 
jobbers  on  the  Pacific  coast  from  the  competition  of 
St.  Louis  and  Chicago  firms,  and  will  ask  the  Inter- 
state Commerce  Commission  not  to  reduce  the  exist- 
ing rates  on  less  than  car-load  shipments. 

"An  attempt  will  also  be  made  to  secure  the  ap- 
pointment of  a  Pacific  coast  man  to  fill  the  present 
vacancy  on  the  Commission,  and  the  association  will 
favor  R.  W.  Wheeler  for  the  place." 

The  Pacific  coast  merchants  demand  that  the  trans- 
continental railways  make  a  large  difference  between 
the  rates  on  car-load  lots  and  those  on  less  than 
car-load  lots.  They  buy  their  goods  from  eastern 
manufacturers  in  car-load  lots;  and  therefore  a  rate 
discriminating  against  less  than  car-load  lots  would 
protect  them  against  the  wholesale  merchants  of  St. 
Louis,  Chicago,  Duluth  and  other  places,  who  sell 
their  merchandise  into  Pacific  coast  territory  in  less 
than  car-load  lots.  In  the  words  of  Mr.  R.  W. 
Wheeler,  whom  the  Pacific  Coast  Jobbers'  and  Manu- 
facturers' Association  put  forward  for  appointment 
to  the  Interstate  Commerce  Commission:  "The 
people  who  pioneered  San  Francisco  did  not  go  there 
because  of  the  beauty  of  its  location,  or  because  the 


420  RAILWAY  RATES 

climate  was  peculiarly  attractive.  They  went  be- 
cause of  its  commercial  possibilities."  They  would 
not  approve  the  transcontinental  lines  ''arbitrarily 
bestowing"  upon  St.  Louis  and  Chicago  jobbers  and 
manufacturers  the  power  "to  reach  out  into  the  other 
fellow's  territory  on  the  Pacific  coast."  * 

In  November,  1902,  the  Interstate  Commerce  Com- 
mission rendered  its  opinion  in  The  Business  Men''s 
League  of  St.  Louis  v.  The  Atchison,  Topeka  and 
Santa  Fe  Railway  Co.,  et  al.  In  that  suit  the  St. 
Louis  League  had  represented  some  2000  persons, 
firms  and  corporations  engaged  in  business  in  St. 
Louis  and  vicinity.  There  had  intervened  on  behalf 
of  the  complainant :  Hibbard,  Spencer,  Bartlett  and 
Co. ;  Reid,  Murdoch  and  Co. ;  Sprague,  Warner 
and  Co. ;  Franklin  MacVeagh  and  Co. ;  Kelly,  Maus 
and  Co.;  and  S.  D.  Kimbark — all  of  Chicago;  the 
Merchants'  and  Manufacturers'  Association  of  Mil- 
waukee; the  Kansas  City  (Mo.)  Transportation  Bu- 
reau of  Kansas ;  the  Duluth  Chamber  of  Commerce, 
and  several  others.  There  had  intervened  on  behalf 
of  the  defendants  the  Pacific  Coast  Jobbers'  and 
Manufacturers'  Association,  and  various  other  Pacific 
coast  commercial  organizations.!  The  jobbers  of  the 
Middle  West  had  alleged  that  the  transcontinental 


*  Report  of  the  Industrial  Commission,  Vol.  IX:  testimony  of  W.  R. 
Wheeler,  representing  the  Pacific  Coast  Jobbers'  Association.  Mr. 
Wheeler's  firm  is  engaged  in  the  wholesale  hardware  trade,  at  San  Fran- 
cisco, Sacramento  and  Los  Angeles. 

t  Interstate  Commerce  Reports,  Vol.  IX. 


THE   DECISIONS   OF   THE   COMMISSION  421 

railways  unjustly  discriminated  against  them  in  the 
following  ways:  by  making  a  lower  rate  to  Pacific 
coast  terminals  than  to  points  upon  the  coast  which 
are  farther  east  (for  example,  Spokane),  and  through 
which  traffic  must  pass  in  reaching  the  terminal 
points;  and  by  undue  and  unreasonable  differences 
between  car-load  and  less  than  car-load  rates.  St. 
Louis  also  alleged  that  it  was  being  subjected  to  unjust 
discrimination  by  the  fact  that  the  rate  from  New 
York  to  the  Pacific  coast  was  the  same  as  the  rate 
from  St.  Louis  to  the  Pacific  coast,  which  fact  de- 
prived St.  Louis  of  the  advantage  accruing  to  it  by 
virtue  of  the  circumstance  that  it  was  looo  miles 
nearer  the  Pacific  coast  than  was  New  York. 

The  Commission's  opinion  in  this  case  so  offended 
the  Pacific  coast  interests  that  in  January,  1905,  the 
Manufacturers'  and  Producers'  Association  of  Cali- 
fornia laid  the  following  resolution  before  the  Com- 
mittee on  Interstate  and  Foreign  Commerce  of  the 
House  of  Representatives:  "Whereas  the  present 
welfare  of  the  manufacturers,  producers,  wholesalers 
and  jobbers  of  the  Pacific  coast  and  the  future  growth 
and  development  of  their  various  and  varied  business 
interests  depend  largely  upon  a  system  of  rate  making 
by  the  transcontinental  railroads,  by  which  the  ter- 
minal rate  to  which  the  jobbing  and  manufacturing 
cities  of  the  coast  are  justly  entitled  by  reason  of 
water  competition  is  recognized ;  and 

"  Whereas  determined  effort  has  been  made  in  the 


422  RAILWAY  RATES 

past  by  the  manufacturers,  producers,  wholesalers 
and  jobbers  of  other  sections  to  do  away  with  said 
terminal  rates  to  Pacific  coast  cities,  and  substitute 
therefor  a  system  of  rates  based  on  distance  or 
mileage,  ignoring  water  competition;   and 

"  Whereas  the  assistance  rendered  the  manufac- 
turers, wholesalers  and  jobbers  of  the  Pacific  coast 
by  the  transcontinental  roads  in  combating  said 
effort  to  establish  rates  based  on  distance  or  mileage 
satisfies  us  that  the  interests  of  the  coast  will  be  best 
served  by  leaving  the  authority  to  make  rates  where  it 
now  is,  in  the  hands  of  the  carriers,  who  are  familiar 
with  the  exceptional  conditions  on  the  Pacific  coast 
and  the  Northwest,  subject  to  review  by  the  Inter- 
state Commerce  Commission  upon  complaint  of  the 
shipper  who  feels  that  a  given  rate  is  wrong;  now 
therefore  be  it 

^^  Resolved,  That  the  Manufacturers'  and  Producers' 
Association  of  California,  while  expressing  the  highest 
respect  for  and  confidence  in,  personally  and  col- 
lectively, the  members  of  the  Interstate  Commerce 
Commission,  respectfully  protest  against  any  legisla- 
tion whereby  said  Commission  would  be  given  the 
arbitrary  right  to  make  rates,  as  inexpedient  and  not 
to  the  advantage  of  business  interests  of  this  com- 
munity, and  that  we  recommend  in  lieu  thereof  that 
the  Commission  be  increased  to  seven  members  and 
that,  in  view  of  the  vast  commercial  interests  involved 
and  the  differences  governing  transportation  on  the 


THE   DECISIONS   OF  THE   COMMISSION  423 

Pacific  coast  and  in  the  Northwest,  that  the  two  new 
members  thus  added  to  the  Commission  should  be 
appointed  one  from  the  Pacific  coast  and  one  from 
the  Northwest,  so  that  all  geographical  sections  of 
the  country  would  be  represented ;  and  be  it  further 

^^ Resolved,  That  the  law  under  which  the  Commis- 
sion is  at  present  operating  is,  in  our  judgment,  a 
proper  one  if  proper  measures  are  taken  to  expedite 
the  hearing  of  cases  upon  appeal,  which  would  con- 
template the  establishment  of  a  court  of  transporta- 
tion, whose  decision  would  be  final  except  in  cases 
where  the  constitutionality  of  the  decree  was  ques- 
tioned." 

On  January  17,  1905,  Mr.  G.  W.  Smith  laid  before 
the  Committee  on  Interstate  and  Foreign  Commerce 
of  the  House  of  Representatives  a 
demands  Distance  report  made  to  the  New  York  Board 
Tariff  for  South-  of  Trade  and  Transportation  by  that 
ern  Trade  body's  Committee  on   railway  trans- 

portation. The  report  dealt  among  other  things  with 
the  proposal,  contained  in  the  Quarles-Cooper  Bill,  to 
give  the  Interstate  Commerce  Commission  power  "to 
prescribe  the  just  relation  of  rates  to  or  from  common 
points."  It  objected  to  giving  the  Commission  such 
power,  because  that  body  had  refused  to  declare 
illegal  the  practice  of  granting  to  Philadelphia,  Balti- 
more and  the  other  Atlantic  and  Gulf  ports  differen- 
tials as  against  New  York.  It  said  the  Commission 
had  been  "actuated  by  a  revolutionary  sentiment," 


424  RAILWAY  RATES 

when  it  had  declared  that  "it  would  be  in  accordance 
neither  with  the  theory  of  our  institutions  nor  with  the 
history  of  the  development  of  our  nation  to  permit  any 
one  port  upon  our  vast  extent  of  seacoast  to  monopo- 
lize the  trade  with  foreign  nations.  Rather  does  this 
recognize  it  as  the  policy  of  our  Government  that 
its  foreign  commerce  should  be  distributed  between 
various  ports." 

The  Report  continues:  "In  like  manner  the  Com- 
mission in  the  Maximum  Rate  Case  *  assumed  to 
adjust  the  relation  of  rates  then  existing  between 
Chicago  and  the  South  and  New  York  and  the 
South.  The  complaint  in  this  latter  case  was  made 
by  the  Chicago  and  Cincinnati  freight  bureaus  that 
rates  to  the  South  from  these  points  were  not  '  in  just 
relation '  to  rates  from  New  York  to  the  same  south- 
ern points.  The  Commission  in  this  case,  acting 
upon  the  principle  enunciated  by  them  and  quoted 
above,  ruled  against  New  York  and  ordered  an  ad- 
justment of  rates  which  would  give  Chicago  jobbers 
a  better  chance  to  take  from  New  York  her  southern 
trade.  This  being  the  most  important  case  in  which 
the  Commission  attempted  to  exercise  this  power, 
it  was  appealed  to  the  United  States  Supreme  Court, 
and  the  action  of  the  Commission  was  made  void 
and  the  power  of  the  Commission  denied.  There- 
upon,  the  Quarles-Cooper  Bill  was  drafted.    The 

•  Interstate  Commerce  Reports,\o\.  VI;  Freight  Bureau  of  the  Cincin- 
nati Chamber  of  Commerce  v.  The  Cincinnati^  New  Orleans  and  Texas 
Pacific  Railway  Co.,  et  al. 


THE   DECISIONS   OF  THE   COMMISSION  425 

geographical  area  from  whence  this  bill  gets  its  chief 
support  is  clearly  defined." 

The  last  paragraph  is  a  reference  to  the  order  made 
by  the  Commission  in  May,  1894,  which  made  speci- 
fied reductions  in  the  rates  charged  in  the  past  from 
Chicago  and  Cincinnati  to  Knoxville,  Chattanooga, 
Rome,  Atlanta,  Meridian,  Birmingham,  Armiston 
and  Selma.  The  Commission's  order  also  had  di- 
rected the  railways  "to  further  readjust  their  tariffs 
of  rates  and  charges,  so  that  .  .  .  rates  .  .  .  from 
Cincinnati  and  Chicago  to  southern  points  other  than 
those  hereinabove  specified  shall  be  in  due  and  proper 
relation  to  rates  put  into  effect  by  said  defendants 
in  compliance  with  the  provisions  of  this  order." 
The  object  of  the  order,  which  fixed  the  new  rates 
in  a  general  way  on  the  distance  or  mileage  basis, 
was  to  relieve  Cincinnati,  Chicago  and  contiguous 
territory  from  the  "undue  prejudice"  to  which  it 
had  been  subjected  in  the  past,  in  the  estimation  of 
the  Commission,  in  consequence  of  the  division, 
made  in  1878,  of  the  trade  of  the  territory  south  of 
the  Ohio  and  Potomac  between  the  Central  West  and 
the  Atlantic  seaboard  respectively.  As  that  regu- 
lation of  interstate  traffic  has  been  described  in  a  pre- 
vious chapter,  it  suffices  to  say  merely  that  it  was 
modified  from  time  to  time,  with  the  development  of 
manufacturing  industries  in  the  Central  West;  and 
that,  in  consequence  of  those  modifications,  Mr.  E. 
P.  Wilson,   Secretary  of  the   Cincinnati  Board  of 


426  RAILWAY   RATES 

Trade  and  various  other  Ohio  commercial  organiza- 
tions, was  able  to  say,  in  1900:  ''The  Northwest 
(Chicago)  and  the  immediate  North  (Cincinnati) 
are  gaining  on  that  business  all  the  time,  but  they  are 
gaining  in  spite  of  discriminations  in  favor  of  the 
Northeast"  (the  Atlantic  seaboard).* 

In  the  course  of  a  discussion  of  this  order,  made 
by  the  Interstate  Commerce  Commission  in  1894, 
Mr.  Walker  D.  Hines,  formerly  Vice-President  of  the 
Louisville  and  Nashville  Railroad,  said,  in  April, 
1905 :t  ''Cincinnati  and  Chicago  in  that  particular 
matter  were  interested  in  a  fight  against  the  eastern 
cities.  Their  interest  (so  far)  was  the  same.  But 
if  those  rates  had  ever  gone  into  effect,  Cincinnati 
would  have  discovered  that  its  interests  had  been 
very  materially  affected  by  that  order,  because  under 
the  existing  rate  adjustment  there  was  an  established 
basis  of  difference  between  Chicago  and  Cincinnati 
to  those  points  in  the  South  to  which  they  were  both 
selling.  This  order  changed  that  adjustment  in  sev- 
eral particulars  in  favor  of  Chicago  as  against  Cin- 
cinnati. There  had  been  no  hearing  of  the  relative 
rights  of  these  two  communities,  no  contest  between 
them ;  but  this  order  changed  it,  and  the  thing  would 
then  have  come  up.  As  to  Meridian,  Ala.,  the  prior 
rates  from  Chicago  on  first  class  matter  had  been  12 

*  Report  of  the  Industrial  Commission  on  Transportation,  1 901, 
Vol.  IX,  p.  695. 

t  Hearings  before  the  Committee  on  Interstate  Commerce,  United  States 
Senate,  April  26,  1905. 


THE  DECISIONS   OF  THE  COMMISSION  427 

cents  higher  than  the  rates  from  Cincinnati.  This 
order  made  them  the  same.  That  would  have 
stirred  up  a  row  between  Chicago  and  Cincinnati. 
As  to  Selma,  the  rates  before  had  been  30  cents 
higher  from  Chicago,  and  this  made  them  20  cents 
higher  —  a  10  cent  reduction  in  favor  of  Chicago, 
which  would  have  been  very  unsatisfactory  to  Cin- 
cinnati. At  Birmingham  there  was  a  change  in  the 
differential  from  30  cents  to  24.  All  those  points 
had  not  been  considered,  but  under  such  a  bill  as 
the  Townsend  Bill  these  rates  of  the  Commission 
would  have  gone  into  effect  in  30  days,  before  they 
could  possibly  have  been  considered,  and  then  the 
Commission  would  have  been  besieged  with  demands 
to  restore  the  old  status  against  which  there  had  been 
no  complaint;  but  on  account  of  the  bigness  of  the 
subject,  things  of  that  sort  would  be  inevitable. 

"Now,  it  did  not  stop  there.  .  .  .  For  example, 
Atlanta  and  Rome  had  the  same  rate  from  Chicago, 
and  the  same  rate  from  Cincinnati.  .  .  .  This  order 
gave  Rome  a  rate  of  75  cents  from  Cincinnati,  and 
Atlanta  a  rate  of  86  cents.*  That  is  a  very  important 
difference.  .  .  . 

"To  take  another  illustration:  the  cities  of  Knox- 
ville  and  Chattanooga  are  both  in  Tennessee,  both 
important  distributing  points.  For  many  years  they 
had  been  on  exactly  the  same  basis  as  regards  freights 

*  From  Chicago  the  Commissioner's  order  made  the  rates  to  Rome  and 
to  Atlanta,  respectively,  114  cents  and  126  cents. 


428  RAILWAY  RATES 

from  Cincinnati  and  Chicago,  without  any  contest 
or  claim  that  there  was  an  unjust  discrimination 
as  between  them.  The  Commission  changed  those 
rates  and  gave  Knoxville  the  benefit  of  7  cents  on  first 
class  freights  and  a  corresponding  benefit  all  the  way 
through." 

Let  us  consider  another  aspect  of  this  order  issued 
by  the  Commission  in  1894.  In  January,  1905,  Mr. 
Samuel  Spencer,  President  of  the  Southern  Railway 
Co.,  testified  before  the  Committee  on  Interstate  and 
Foreign  Commerce  of  the  House  of  Representatives, 
that  the  enforcement  of  the  order  would  have  neces- 
sitated the  readjustment  of  2000  rates.  Mr.  H.  L. 
Bond,  Jr.,  Second  Vice-President  of  the  Baltimore 
and  Ohio,  added:  "I  have  the  estimate  of  the  traffic 
officers  of  some  of  the  southern  roads  —  informal, 
of  course  —  that  that  order  would  have  meant  a  loss 
of  revenue  of  at  least  $3,000,000  a  year;  or,  let  us 
say,  it  would  have  destroyed  the  borrowing  power  of 
these  railroads  to  the  extent  of  $50,000,000  .  .  . 
this  order  was  passed,  as  you  will  remember,  in 
1894,  when  these  railroads  were  flat  on  their  backs 
and  a  large  part  of  the  mileage  of  the  present  South- 
ern Railway  was  in  the  hands  of  receivers." 

Had  this  order  been  enforced,  the  position  of  the 
manufacturers  and  merchants  of  Chicago  would  have 
been  improved,  at  the  expense  of  the  manufacturers 
and  merchants  of  the  Atlantic  seaboard  and  of  Cin- 


THE  DECISIONS  OF  THE  COMMISSION  429 

cinnati.  The  relative  positions  of  the  many  cities 
south  of  the  Ohio  and  Potomac  would  have  been 
changed;  and  no  one  could  undertake  to  say 
whether  the  final  result  would  have  been  the  attain- 
ment of  more  substantial  justice  than  had  been  at- 
tained under  the  original  adjustment  of  rates.  But 
the  producers  south  of  the  Ohio  and  Potomac  would 
have  been  injured,  for  the  enforcement  of  the  Com- 
mission's order  would  have  curtailed  the  expendi- 
ture of  money  in  the  southern  territory  for  the  purpose 
of  improving  the  existing  railways  and  the  build- 
ing of  extensions.  Who  shall  say  that  the  damage 
done  to  the  southern  producers  would  not  have  out- 
weighed the  benefit  conferred  upon  the  merchants 
and  manufacturers  of  Chicago? 

There  is  still  another  aspect  of  this  case.  The 
Commission  in  a  general  way  had  fixed  the  rates  in 
question  on  a  mileage  basis,  though  there  had  been 
the  usual  and  considerable  admixture  of  guessing. 
Chicago,  however,  has  another  controversy  on  its 
hands.  "  Recently  the  Gulf  ports  have  been  invading 
the  grain-raising  section  of  Kansas  and  securing  a 
large  export  business  which  formerly  had  passed 
through  Chicago.  As  a  consequence,  complaints 
long  and  loud  have  been  heard  in  protest  of  this  '  in- 
vasion of  a  territory  which  of  right  belongs  to  Chi- 
cago.'" *  If  the  Interstate  Commerce  Commission 
should  be  given  power  to  fix  rates,  and  should  then 

*  TAe  Railway  Age,  May  19,  1905. 


430  RAILWAY  RATES 

be  called  upon  to  exercise  that  power  in  settling  this 
controversy,  it  would  be  bound  to  rule  against  Chi- 
cago; for  the  Gulf  ports  have  the  advantage  of 
Chicago  and  the  Atlantic  ports,  in  the  matter  of  rela- 
tive distances,  as  well  as  in  the  matter  of  "  back-haul." 
The  movement  of  lumber  from  Chicago  to  Kansas 
is  on  the  wane,  but  the  movement  of  lumber  from 
the  Gulf  States  to  Kansas  is  on  the  increase.  To 
repeat,  the  Commission  would  have  to  rule  against 
Chicago  in  this  controversy,  unless,  indeed,  the  Com- 
mission is  to  have  the  power  to  make  one  law  for  the 
settlement  of  disputes  between  Chicago  and  the  Atlan- 
tic seaboard  cities,  as  regards  traffic  with  the  South, 
and  a  totally  different  law  for  the  settlement  of  dis- 
putes between  Chicago  and  the  Gulf  ports.  If  the 
Commission  is  to  have  that  power,  then  we  shall 
cease  to  have  a  government  of  laws  and  shall  have 
a  government  of  men ;  our  interstate  commerce  will 
cease  to  be  regulated  in  accordance  with  the  law  and 
will  come  to  be  regulated  through  the  dispensing 
power  of  the  Interstate  Commerce  Commission.  That 
means  dependence  upon  the  dispensing  power  of  a 
political  body;  for  the  Act  to  Regulate  Commerce, 
which  established  the  Interstate  Commerce  Commis- 
sion, expressly  states:  ''Not  more  than  three  of  the 
Commissioners  shall  be  appointed  from  the  same  po- 
htical  party."  In  other  words,  the  original  act  formally 
recognizes  the  danger  that  the  Interstate  Commerce 
Commission  maybe  swayed  by  political  considerations. 


THE   DECISIONS   OF  THE   COMMISSION  431 

Some  time  in  the  latter  seventies  or  early  eighties, 
the  railways  leading  from  Missouri  and  Kansas  into 
Assumption  of  Texas  established  a  rate  on  wheat 
dispensing  Power  which  was  1 5  to  20  cents  per  100 
by  the  Commission  poinds  less  than  the  rate  on  flour. 
This  they  did  for  the  purpose  of  encouraging  flour- 
milling  in  Texas,  an  infant  industry.  As  the  Texas 
mills  grew  stronger  and  better  able  to  meet  the  compe- 
tition of  the  Missouri  and  Kansas  mills,  the  railways 
gradually  lowered  the  differential  in  favor  of  wheat ; 
and  finally,  in  1884,  brought  it  down  to  5  cents  a  100 
pounds,  after  consultation  with  the  millers  and  wheat 
growers  of  Texas,  on  the  one  hand,  and  the  millers  of 
Kansas  and  Missouri,  on  the  other.  In  1890*  the 
Kauffman  Milling  Co.  of  St.  Louis  complained  to  the 
Interstate  Commerce  Commission  that  the  differen- 
tial in  question  subjected  it  to  undue  and  unreasonable 
prejudice  and  disadvantage.  In  this  case  the  argu- 
ment of  the  Commission  was  based  almost  exclu- 
sively upon  a  discussion  of  the  trade  conditions  and 
special  circumstances  existing  in  Kansas  and  Missouri, 
as  compared  with  Texas.  Looking  at  the  matter 
from  "a  purely  commercial  standpoint,"  the  Com- 
mission said:  "The  general  effect  of  the  differ- 
ential seems  only  to  be  to  place  the  competitive  milling 
interests  upon  a  substantial  parity.  Both  interests 
undoubtedly  make  less  profit  and  have  less  business 

*  Interstate  Commerce  Reports,  Vol.  IV;  Kauffman  Milling  Co.  v.  The 
Missouri  Pacific  Railway  Co.  et  al. 


432  RAILWAY   RATES 

than  if  the  competitors  of  either  did  not  exist,  but  the 
question  is  not  whether  either  of  the  parties  shall  have 
a  monopoly  of  the  business  and  therefore  higher 
profits,  but  whether,  as  both  legitimately  exist  and 
have  lawful  right  to  pursue  the  business  in  which  they 
are  engaged,  they  shall  be  put  upon  a  substantial 
footing  of  equality  by  an  arrangement  that  allows 
some  profit  to  both  and  enables  them  to  compete  on 
relatively  equal  terms.  .  .  . 

"The  conclusions  reached  in  this  case  apply  only 
to  the  situation  existing  at  the  present  time  in  the  ter- 
ritory in  question,  and  are  not  intended  to  lay  down 
any  permanent  rule  for  the  future,  or  to  be  applied  in 
any  other  territory. 

"The  case  is  disposed  of  with  a  view  to  what  is  best 
for  the  public  interests  immediately  concerned,  and 
upon  facts  found  to  exist  rather  than  upon  theories 
of  transportation.  No  question  of  general  policy  is 
involved.  An  exceptional  condition  only  is  presented 
with  relative  rates  adapted  to  the  condition,  and  a 
sudden  change  in  the  relations  of  these  rates  could 
scarcely  fail  to  be  injurious  to  important  vested 
interests.  .  .  ." 

In  an  earlier  part  of  the  opinion  the  Commission 
had  said:  "The  case  is  altogether  peculiar.  Origi- 
nally brought  by  millers  of  St.  Louis  against  certain 
carriers  engaged  in  transporting  wheat  and  wheat- 
flour  into  Texas,  it  in  fact  represents  the  milling  inter- 
ests of  IMissouri  and  Kansas,  and,  by  the  intervention 


THE   DECISIONS   OF  THE  COMMISSION  433 

of  the  millers  of  Texas,  has  broadened  into  a  con- 
troversy between  the  first-named  millers,  on  the  one 
hand,  and  the  last-named  millers,  on  the  other  hand. 
The  carriers  that  are  nominal  respondents  upon  the 
record,  in  the  main,  support  the  contention  of  the 
Texas  millers." 

In  a  vigorous  dissenting  opinion,  Commissioner 
Morrison  said:  "The  decision  is  made  in  considera- 
tion of  the  advantages  resulting  to  Missouri  and 
Kansas  mills,  from  their  location  in  or  near  the  wheat- 
producing  region,  from  which  Texas  mills  also  draw 
a  large  part  of  their  wheat  supply,  at  a  cost  much  in- 
creased by  the  higher  transportation  charges  which 
it  must  pay.  In  declaring  this  higher  rate  on  flour 
lawful,  the  Commission  assumes  to  put  the  millers 
of  Texas  on  a  'parity'  with  their  competitors  in  the 
Texas  markets,  by  depriving  Missouri  and  Kansas 
millers  of  whatever  advantage  they  have  in  their 
favorable  location. 

"In  a  recent  case*  the  Commission  said  substan- 
tially, and  I  think  correctly,  that  while  the  law  forbids 
discriminations  that  are  unjust,  it  does  not  justify 
deviation  from  a  just  and  reasonable  rate  to  equalize 
advantages  of  geographical  location  as  between 
western  and  eastern  millers.  In  my  opinion  such  a 
deviation  would  be  equally  unjustifiable  to  equalize 


*  Interstate   Commerce  Reports,  Vol.  IV;   H.  and H,  Bates,  Jr.,  v.  The 
Pennsylvania  Railroad  Co.,  et  al. 


434  RAILWAY  RATES 

advantages  of  geographical  location  as  between 
western  and  southwestern  millers/ 

"The  milling  capacity  of  many  of  the  States  and 
of  the  United  States  is  excessive.  Texas,  like  many 
other  States,  has  mills  to  grind  more  wheat  than  it 
produces.  Its  people  produce,  or  did  last  year,  half 
the  wheat  they  used,  and  this  with  half  as  much  more 
they  made  into  flour.  They  get  some  flour  from 
mills  east  of  the  Mississippi  River,  and  make  double 
as  much  more  in  their  own  mills  from  their  own  wheat 
as  they  get  from  Kansas  and  ^lissouri.  The  ad- 
vantages resulting  from  the  location  of  mills  near 
wheat  supplies  is  thus  shown  to  be  with  Texas  mil- 
lers in  the  manufacture  of  one-half  and  with  Missouri 
and  Kansas  millers  of  but  one-fourth  of  the  flour  sold 
in  Texas.  If,  therefore,  the  advantages  or  disad- 
vantages resulting  from  the  greater  or  less  prudence 
with  which  citizens  of  respective  States  locate  their 
business  establishments  are  to  be  equalized  by  the 
roads  in  the  adjustment  of  rates,  and  this  by 
authority  of  a  regulating  Commission,  then  lower 
rates  should  be  given  to  Kansas  millers  to  compen- 
sate them  for  the  advantage  their  competitors  have 
in  the  use  of  Texas  wheat  in  producing  flour  for  the 
Texas  market. 

"The  right  to  have  disadvantages  resulting  from 
the  location  of  mills  and  business  establishments  re- 
moved or  equalized  by  the  imposition  of  transporta- 
tion charges,  if  conceded  at  aU,  cannot  end  with  such 


THE  DECISIONS  OF  THE  COMMISSION  435 

as  are  local  to  any  one  State,  but  belongs  as  well  to 
all  the  States,  and  is  as  applicable  to  other  industries 
as  to  milling.  If  flour  milling  of  Texas  must  be  pro- 
tected by  an  increased  rate  of  5  cents  on  flour  brought 
from  other  States,  milling  east  of  Ohio  must  have 
like  protection,  though  it  will  increase  the  cost  of  the 
bread  of  millions  there  as  it  does  in  Texas. 

''When  this  rule  of  regulation  is  applied,  as  it  must 
be,  to  other  industries  than  milling,  the  makers  of 
sugar  in  Texas  and  Louisiana,  advantageously  located 
for  economic  production,  will  be  required  to  pay  such 
high  rates  on  sugar  as  will  enable  the  Kansas  grower 
of  sorgham  to  compete  on  equally  profitable  terms, 
in  the  sale  of  sugar,  in  the  Kansas  market.  In  such 
endeavor  to  protect  disadvantageous^  located  indus- 
tries, through  increased  rates  and  charges,  the  Com- 
mission will  scarcely  have  occasion  to  use  its  powers 
of  regulation,  for  whatever  this  Commission  may 
authorize  the  roads  to  do,  they  may  lawfully  do 
without  its  authority. 

"A  scheme  of  regulation,  with  the  object  of  equal- 
izing advantages  of  location,  is  practically  without 
limit,  if  not  impossible  of  execution.  In  the  case 
under  consideration,  it  is  proven  that  millers  of  Mis- 
souri and  Kansas,  with  the  same  rates  on  flour,  do 
not  compete  in  the  Texas  flour  market  on  equal 
terms,  for  the  reason  that  Kansas  mills  are  more 
advantageously  located,  in  having  wheat  so  near 
at  hand  that  their  cost  of  transportation  is  small,  in 


436  RAILWAY  RATES 

comparison  with  that  paid  by  Missouri  millers. 
The  ruling  of  this  Commission  will  require  that  the 
'trade  conditions'  in  this  and  every  such  case  shall 
be  equalized  by  a  higher  rate  on  Kansas  than  on 
Missouri  flour." 

There  is  no   doubt   that   the   dissenting   opinion 

of   Commissioner  Morrison   construed   the  Act   to 

Regulate  Commerce  as  it  had  been 

Regulation  by  ^         ^      -i         r\         r^  •     • 

Men,  not  by  Law  construed  by  the  Commission  up 
to  that  time,  and  as  it  has  been 
construed  by  the  Commission  since  then.  There- 
fore the  ruling  of  the  majority,  that  this  case  must  be 
decided  "upon  the  facts  found  to  exist  rather  than 
upon  theories  of  transportation"  thus  far  employed 
by  the  Commission  in  interpreting  the  law,  is  not 
only  disquieting,  but  positively  alarming.  For  it 
foreshadows  the  possibility  of  a  condition  of  affairs 
under  which  the  interstate  commerce  of  the  United 
States  shall  be  regulated,  not  in  accordance  with  the 
law,  but  through  the  dispensing  power  of  the  Inter- 
state Commerce  Commission.  It  foreshadows  the 
time  when  we  shall  be  doing  in  the  United  States 
what  Prussia  did  in  April,  1894,  when  it  bought  the 
votes  of  the  representatives  from  Saxony,  Bavaria, 
Wuertemberg  and  Baden,  — in  the  Imperial  Reichstag, 
as  well  as  in  the  Federal  Council,  —  bought  them  by 
abrogating  the  freight  rates  which  had  permitted  the 
grain  of  eastern  Germany  to  find  a  market  in  middle 
Germany  and  in  western  and  southwestern  Germany. 


THE  DECISIONS   OF  THE  COMMISSION  437 

It  foreshadows  the  time  when  we  shall  be  doing  in 
the  United  States  what  every  successive  French  Gov- 
ernment does,  when  it  refuses  to  incur  the  hostility 
of  powerful  trade  interests  by  overthrowing  that  tra- 
dition under  which  the  Administration  refuses  to 
sanction  a  railway  rate  that  shall  be  less  than  20  per 
cent  in  excess  of  the  rate  made  upon  the  competing 
waterways.  It  foreshadows  the  time  when  we  shall 
be  doing  in  the  United  States  what  every  successive 
Australian  Government  does,  when  it  declines  to 
offend  the  powerful  seaboard  cities  by  making  railway 
rates  which  shall  put  an  end  to  that  concentration  of 
trade,  industry  and  population  that  constitutes  "the 
curse  of  Australia." 

Returning  once  more  to  the  Kauffman  Milling  case 
and  the  Interstate  Commerce  Commission's  conclu- 
sion that  the  case  must  be  decided  on  the  facts  found 
to  exist,  rather  than  on  transportation  theories, 
since  the  controversy  had  "broadened  into  a  contro- 
versy between  the  Kansas  and  Missouri  millers  on 
the  one  hand,  and  the  Texas  millers  on  the  other 
hand,"  we  find  that  at  the  very  moment  when  the 
Commission  was  framing  its  opinion,  there  was  going 
on  in  Texas  an  agitation  for  a  State  Railroad  Com- 
mission. We  notice  that  one  of  the  principal  reasons 
why  the  people  of  Texas  were  demanding  a  State 
Commission,  with  the  power  to  make  intrastate  rates, 
was  the  desire  that  that  power  should  be  used  for  the 
purpose  of  protecting  the  industries  and  the  jobbing 


438  RAILWAY  RATES 

trade  of  Texas  against  competition  from  the  remaining 
States  of  the  Union.  We  discover  that  a  State  Com- 
mission was  estabHshed  in  1891,  a  few  months  after 
the  Federal  Commission  had  rendered  its  opinion. 
We  learn  from  the  very  first  annual  report  of  that 
Commission,  the  report  for  the  year  ending  with 
June,  1892,  that  the  Commission  immediately  after 
taking  office  reduced  and  otherwise  changed  many 
intrastate  rates,  for  the  purpose  of  stimulating  pro- 
duction within  the  State  —  that  is,  for  the  purpose 
of  curtailing  imports  from  other  States.  It  made 
reductions  in  the  intrastate  rates  on  grain,  cotton, 
lumber,  live  stock,  salt,  cottonseed,  coal,  lime, 
cement,  etc. 

The  Commission  reported  that  the  reductions  in  the 
rates  on  grain  had  led  to  the  building  of  flour-mills 
and  elevators  in  Texas,  and  had  "saved  us  the  ex- 
pense of  transporting  wheat  to  Missouri  and  Kansas 
and  bringing  back  the  flour  " ;  that  the  reductions 
made  in  the  intrastate  rates  on  salt  had  "caused  a 
large  increase  in  the  manufacture  of  salt  in  all  parts 
of  the  State  —  under  the  old  system  of  rates  salt  was 
shipped  into  large  areas  of  the  State  from  Kansas 
and  Michigan  at  lower  rates  than  from  the  salt 
manufactories  of  Texas  to  the  same  points."  In 
other  words,  had  it  not  been  for  the  fact  that  the 
Interstate  Commerce  Commission  decided  to  judge 
the  case  under  consideration  "upon  the  facts  found 
to  exist  rather  than  upon  theories  of  transportation," 


THE   DECISIONS   OF   THE   COMMISSION  439 

the  people  of  the  United  States  would  have  witnessed 
the  spectacle  of  the  Texas  State  Railroad  Commission 
overruling  the  Interstate  Commerce  Commission  of 
the  United  States. 


CHAPTER  IX 

THE    PORT    DIFFERENTIALS 

The  foregoing  review  of  the  decisions  of  the  In- 
terstate Commerce  Commission  has  shown  that  the 
Commission  has  condemned  all  but  one  of  the  rate 
practices  by  means  of  which  the  railways  have  made 
themselves  the  most  powerful  single  factor  in  the 
development  of  the  resources,  industry  and  trade  of 
our  country.  That  single  exception  was  the  approval 
of  the  practice  of  giving  Philadelphia,  Baltimore  and 
the  other  northern  Atlantic  ports  dijfferentials  which 
permitted  those  ports  to  become  competitors  of  New 
York  City  in  the  export  of  agricultural  products  and 
of  manufactures.  It  is  important  to  note  that  that 
approval  came  after  the  Supreme  Court  had  com- 
pletely reversed  the  Commission  in  Interstate  Com- 
merce Commission  v.  Texas  and  Pacific  Railway  Co.^ 
and  Interstate  Commerce  Commission  v.  Alabama 
Midland  Railway  Co.,'\  and  had  instructed  the 
Commission  that  the  Act  to  Regulate  Commerce 
was  enacted  for  the  purpose  of  promoting  trade, 
not  for  the  purpose  of  throttling  it.  In  the  interpre- 
*  162  U.  S.  197.  t  168  U.  S.  144- 

440 


THE   PORT   DIFFERENTIALS  441 

tation  of  that  Act,  the  Court  had  said  that  due  con- 
sideration must  be  given  to  all  the  interests  affected 
and  that  attention  must  not  be  fixed  exclusively  upon 
the  interest  represented  by  the  complainant. 

In  1898,  and  again  in  1905,  the  Commission  took  up 
this  question  of  port  differentials,*  which,  since  1876, 
^,    ^       .   .   ,    had  been  an  object  of  constant  dis- 

The  Commissions  ■' 

Cost  of  Service      putc  between  the  several  ports  and  the 
Theory  breaks        several  groups  of  railways.     In  each 
^"'  case    the   Commission  reported  that 

it  had  "endeavored  to  find  some  fundamental  prin- 
ciple by  the  application  of  which  this  dispute  might 
be  laid  at  rest,  but  entirely  without  success."  It 
said  that  each  one  of  the  parties  to  the  dispute — • 
namely.  New  York,  Boston,  Philadelphia  and  Balti- 
more—  was  a  seaport,  and  as  such  was  "entitled  to 
participate  in  the  export  business,  and  the  public  in- 
terest required  that  that  right  should  be  recognized." 
That  right  could  not  be  conserved  under  the  appli- 
cation of  the  doctrine  that  rates  must  be  based  on  cost 
of  service,  or  under  the  application  of  the  doctrine 
that  to  each  port  must  be  secured  the  advantages 
accruing  to  it  by  virtue  of  its  geographical  position 
or  by  virtue  of  any  other  advantage,  natural  or 
acquired.  On  the  contrary,  that  right  could  be  con- 
served only  on   the  basis  of  denying  the   right  of 

*  N'ew  York  Produce  Exchange  v.  Baltifnore  atid  Ohio  Railroad 
Co.  et  al.,  in  Interstate  Commerce  Reports,  Vol.  VII ;  and  In  the 
Matter  of  Differential  Freight  Rates  to  and  from  North  Atlantic 
Ports,  Vol.  X. 


442  RAILWAY  RATES 

a  port  to  the  full  enjoyment  of  its  natural  or 
acquired  advantages,  and  of  seeking  to  "  equalize  " 
the  advantages  and  disadvantages  of  the  sev- 
eral ports.  The  Commission  expressly  said  ''the 
thing  to  be  equalized  was  not  the  rate  but  the 
advantages  of  transportation  through  the  several 
ports."  In  other  words,  the  Commission  found 
that,  if  the  total  rail  and  ocean  charge,  from  (say) 
Chicago  to  Liverpool,  should  be  made  the  same 
through  the  several  ports,  Philadelphia  and  Balti- 
more would  be  unable  to  hold  their  own  against 
New  York.  This  would  follow  because  New  York 
had  certain  advantages  which  would  make  shippers 
unwilling  to  export  by  way  of  Philadelphia  and 
Baltimore  unless  the  total  rail  and  ocean  charge 
should  be  less  by  way  of  the  latter  ports.  These 
advantages  of  New  York  were :  lower  ocean  insur- 
ance charges,  quicker  and  more  reliable  service 
arising  from  more  frequent  sailings,  the  ability  to 
reach  a  greater  number  of  European  ports  on  regular 
lines  from  New  York  than  from  Philadelphia  and 
Baltimore,  and  superior  banking  facilities  at  New 
York,  as  well  as  better  storage  facilities  for  grain. 

The  Commission  expressly  declined  to  give  any 
weight  to  the  argument  advanced  by  New  York  that 
the  differentials  "forced  traffic  out  of  natural  chan- 
nels into  unnatural  and  more  expensive  ones,  and 
that  the  final  effect  is  to  impose  an  enormous  burden 
on  the  public."    The  Commission  said :  "To  decree 


THE  PORT   DIFFERENTIALS  443 

that  the  traffic  should  always  move  by  the  cheapest 
route  would  be  to  entirely  eliminate  competition, 
which,  within  reasonable  bounds,  is  for  the  interest 
of  the  general  public."  Coming  finally  to  consider 
how  the  various  advantages  and  disadvantages  of 
the  several  ports  were  to  be  equalized,  the  Com- 
mission said:  "The  elements  which  enter  into  this 
problem  are  so  various  and  so  complex  that  it  is 
manifestly  impossible  by  any  a  priori  process  of 
reasoning  to  determine  what  inland  differential  will 
equalize  all  these  advantages  and  disadvantages. 
This  was  the  conclusion  of  Mr.  Fink  [in  1881],  of 
the  Advisory  Commission*  [in  1882],  of  this  [Inter- 
state Commerce]  Commission  upon  the  former 
investigation  [in  1898].  It  is  our  conclusion  now 
[1905].  The  best  that  can  be  done  is  to  examine 
the  effect  of  these  differentials." 

In  other  words,  the  best  thing,  and  the  only  thing, 
that  could  be  done  was  to  ascertain  the  proportion  in 
which  the  export  business  divided  itself  among  the 
several  ports  under  the  free  play  of  competition  — 
that  is,  during  a  rate  war,  —  to  accept  that  propor- 
tion as  indicative  of  the  ability  of  the  several  ports 
to  bid  for  business  and  as  doing  substantial  justice 
to  all  the  parties  concerned,  and  then  to  seek  to  fix 
the  differentials  in  such  a  way  that  the  export  busi- 

*  Report  of  Messrs.  Thtirman^  Washburne  and  Cooley,  constituting 
an  Advisory  Co>nmission  on  Differential  Rates  by  Railroads  between 
the  PVest  and  the  Seaboard,  reprinted  in  Hearings  before  the  Com- 
mittee on  Interstate  Commerce.,  United  States  Senate.,  April  27,  1905. 


444  RAILWAY   RATES 

ness  under  the  operation  of  those  differentials  would 
divide  itself  among  the  several  ports  in  the  propor- 
tions that  had  obtained  during  the  rate  war  —  that 
is,  under  the  free  play  of  the  competitive  forces  of 
trade  and  transportation.  To  quote  the  Commission 
once  more:  "The  Act  to  Regulate  Commerce  does 
not  aim  to  fetter  competition,  nor  interfere  with  the 
natural  flow  of  trade  and  commerce.  One  cardinal 
object  of  that  act  was  to  secure  perfect  freedom  of 
competition  among  the  carriers  themselves.  It  is 
only  when  that  competition  becomes  tyrannical,  so 
to  speak,  when  in  the  competitive  struggle  localities, 
commodities,  individuals  are  in  danger  of  being 
crushed,  that  the  law  steps  in.  .  .  .  If  anything  of 
that  sort  were  apparent,  if  there  seemed  to  be  any- 
thing arbitrary,  anything  unreasonable,  any  undue 
preference  against  this  locality  or  this  species  of 
traffic,  it  would  be  our  duty  to  correct  it.  But  there 
is  nothing  of  that  kind  and  we  can  do  no  better 
than  to  leave  this  matter  where  competition  has 
left  it." 

To  repeat,  in  the  single  instance  in  which  the  Com- 
mission judged  an  American  rate  practice  on  the 
principle  that  the  public  interest  demanded  that 
competition  between  rival  markets  and  producing 
centres  be  promoted,  not  thwarted,  the  Commission 
was  compelled  to  abandon  the  doctrine  that  railway 
rates  must  be  based  on  cost  of  service,  and  was 
obliged  to  confess  that  it  could  find  no  "  fundamental 


THE   PORT   DIFFERENTIALS  445 

principle  by  the  application  of  which  might  be  laid 
at  rest "  the  disputes  between  rival  producing  and 
distributing  centres.  The  Commission  was  obliged 
to  confess  that  competition  alone  could  settle  those 
disputes,  and  that  the  supervising  or  regulating  pub- 
lic authority  could  do  no  more  than  see  to  it  that 
the  compromises  resulting  from  the  free  play  of  the 
competitive  forces  of  trade  and  transportation  were 
made  with  intelligence  and  in  good  faith. 

In  1905  the  Commission  took  up  the  question  of 
the  port  differentials,  not  by  virtue  of  its  powers 
under  the  Act  to  Regulate  Commerce,  but  upon  the 
request  of  the  several  railways  and  seaboard  cities 
that  the  Commission  act  as  arbitrator  between  them. 
The  Commission  found  that  the  existing  differentials 
did  not  constitute  an  unreasonable  and  unlawful 
discrimination ;  but  it  none  the  less  modified  some 
of  the  differentials  somewhat,  on  the  assumption 
that  the  fact  that  it  was  acting  as  arbitrator  gave  it 
somewhat  greater  discretionary  power  than  it  could 
exercise  by  virtue  of  the  Act  to  Regulate  Commerce. 

It  is  instructive  to  note  the  manner  in  which  the 
several  parties  to  the  controversy  received  the 
Commission's  award.  The  several  railways  ac- 
cepted it  with  little,  if  any,  protest;  in  fact,  they 
took  comparatively  little  part  in  arguing  the  case 
before  the  Commission.  Not  so  the  Chambers  of 
Commerce  of  the  several  cities,  whose  represen- 
tatives   argued    their    cases    at    great    length.    No 


446  RAILWAY  RATES 

city  was  wholly  satisfied  with  the  award,  and 
Boston  was  bitterly  disappointed.  The  Boston 
Herald,^  one  of  the  leading  newspapers  in  New 
England,  expressed  itself  as  follows:  "The  business 
community  of  Boston  and  New  York  have  had 
this  practical  illustration  given  them  of  the  manner 
in  which  their  interests  would  be  jeopardized  if  the 
entire  settlement  of  railroad  rates  was  left  to  a  tribu- 
nal at  Washington,  subject,  as  that  tribunal  must 
be,  to  the  potent  influences  which  can  be  brought 
to  bear  in  favor  of  special  interests.  In  this  instance 
what  may  be  termed  the  Pennsylvania  interest, 
represented  by  its  great  railroad  system,  allied  with 
its  industrial  trusts,  has  come  out  on  top.  Penn- 
sylvania has  for  nearly  two  generations  laid  the 
country  under  tribute  through  protective  tariffs, 
traffic  arrangements  and  other  equally  arbitrary 
devices  for  gaining  unwarrantable  profit  at  the  ex- 
pense of  others.  It  has  now  won  another  victory 
by  obtaining  a  decision  from  the  Interstate  Commerce 
Commission  which,  in  effect,  forces  commerce  which 
would  otherwise  take  the  shortest  route  between  the 
point  of  departure  and  point  of  destination  to  follow 
a  circuitous  route  for  the  benefit  of  favored  interests. 
"This  experience  proves  conclusively  what  we 
have  hitherto  maintained,  that  if  the  function  of 
making  railroad  rates  were  intrusted  to  a  national 
tribunal,  no  method  of  rate  making  free  from  undue 

*  May  20,  1905. 


THE  PORT  DIFFERENTIALS  447 

influence  would  be  possible  except  a  per  mile  per 
ton  rate  from  one  end  of  the  country  to  the  other, 
and  this  would  simply  revolutionize  our  entire  system 
of  interstate  commerce." 

Six  weeks  later  the  subcommittee  of  the  Boston 
Chamber  of  Commerce,  appointed  to  consider  the 
differential  question,  reported  as  follows:  "The' 
contentions  of  Boston  were  backed  up  in  every 
instance  by  unquestioned  proofs,  and  these  were 
in  many  instances  a  complete  refutation  of  the  argu- 
ments later  assigned  by  the  Commission  for  its,  to 
say  the  least,  peculiar  decision.  The  report  and 
opinion  of  the  Commission  defy  analysis.  It  openly 
confesses  a  vain  search  for  some  fundamental  prin- 
ciple upon  which  to  settle  the  dispute.  Failing  in 
this,  it  flounders  around  in  an  abortive  attempt  to 
justify  the  indefensible.  Boston  would  prefer  to 
rely  upon  her  own  pluck,  industry  and  foresight 
to  secure  her  just  proportion  of  the  export  traffic; 
but  if  the  disadvantages  of  a  port  are  to  be  capi- 
talized, —  if  lack  of  facilities  is  to  command  a 
premium  and  their  development  is  to  constitute  a 
handicap,  if  legislation  is  to  compel  what  civic  pride, 
local  energy  and  liberal  investment  should  command, 
—  then  Boston  wants  its  fair  share  in  the  distribu- 
tion of  favors. 

"We  believe,  however,  with  Commissioner 
Clements,  that  the  export  freight  differentials  are 
in  themselves  illegal,  inasmuch  as  they  are  an  inter- 


448  RAILWAY  RATES 

ference  with  free  competition  and  are  therefore  in 
restraint  of  trade.  We  shall  not  cease  to  demand 
their  abolition." 

This  question  of  the  seaboard  diflterentials  has 
been  fought  over  and  arbitrated  for  thirty  years.  It 
has  been  investigated  and  studied  by  men  who  in 
ability  were  second  to  none  in  their  respective  pro- 
fessions. And  to-day  the  question  is  as  far  as  ever 
it  was  from  a  solution  that  will  be  satisfactory  to 
each  of  the  parties  to  the  controversy.  Not  the 
slightest  progress  has  been  made  toward  agreement 
upon  the  principles  which  are  to  be  applied  to  the 
settlement  of  the  controversy.  The  majority  of 
the  Commission  reports  that  the  system  of  differen- 
tials must  be  retained  in  order  that  competition  may 
be  maintained  and  promoted;  while  the  dissenting 
opinion  of  Mr.  Commissioner  Clements  asserts  that 
the  system  of  differentials  is  an  interference  with 
free  competition  and  therefore  acts  in  restraint  of 
trade.  Finally,  after  thirty  years  of  discussion,  the 
question  is  still  so  far  from  solution  that  it  cannot 
be  discussed  and  adjudicated  without  charges  of 
bad  faith  being  made.  One  of  the  leading  news- 
papers of  New  England  is  led  to  employ  the  words 
"undue  influence";  and  a  subcommittee  of  one 
of  the  leading  chambers  of  commerce  in  the  United 
States  is  led  to  employ  the  words  "distribution  of 
favors." 


CHAPTER  X 

SUMMARY  AND  CONCLUSION 

The  problem  of  railway  rates  is  fully  as  much 

the  problem  of  the  adjustment  of  the  conflicting 

,    „   „  interests   of    rival   producine;    centres, 

TheProbletn  ,  ,,..,.  °    . 

markets  and  distributmg  pomts,  as 
it  is  the  problem  of  the  adjustment  of  the  conflicting 
interests  of  competing  railways  or,  finally,  the  prob- 
lem of  the  adjustment  of  the  conflicting  interests 
of  the  public  and  the  railways.  That  is  shown  con- 
clusively by  the  experience  of  the  United  States, 
where  it  has  not  infrequently  been  easier  to  effect 
a  compromise  between  the  conflicting  interests  of 
competing  railways  than  to  reconcile  conflicting 
interests  of  rival  producing  centres,  markets  and 
distributing  points.  It  is  shown  even  more  con- 
clusively by  the  experience  of  these  countries  which 
have  replaced  the  railway  company  by  the  State  — 
that  is,  have  gone  over  to  the  State  ownership  or 
State  regulation  of  the  railways.  The  invariable 
result  in  these  countries  has  been  to  transfer  from 
the  field  of  business  to  the  field  of  politics  the 
perplexing  questions  of  trade  rivalry  and  jealousy 

2G  449 


450  RAILWAY  RATES 

precipitated  by  the  annihilation  of  distance  by  means 
of  the  railway.  Under  government  ownership  or 
direction  the  sectional  conflicts  precipitated  by  dis- 
cussion of  railway  development  have  oftentimes  been 
so  fierce  that  it  has  become  necessary  partially  to 
paralyze  the  railways,  for  the  purpose  of  preventing 
them  from  developing  new  producing  regions,  new 
markets  and  distributing  points. 

Under  government  ownership  of  the  railways  in 
Prussia,  the  most  enlightened  and  the  most  inde- 
pendent bureaucratic  government  the 
^"^"^  P'^^^y^"  world   has   known,    the   State   Rail- 

t/u  Railways  \ 

way  Department  is  not  allowed  to 
make  railway  rates  that  will  permit  the  surplus 
grain,  timber  and  beet  sugar  of  eastern  Germany 
to  move  by  rail  to  the  markets  of  the  mining  and 
manufacturing  regions  along  the  Rhine,  there  to 
compete  with  the  grain,  timber  and  beet  sugar  pro- 
duced in  western,  southwestern  and  central  Ger- 
many. Again,  the  failure  of  the  State  Railway 
Department's  efforts  to  get  the  iron  and  steel  pro- 
ducers of  the  Saar  district  to  agree  with  the  iron  and 
steel  producers  of  the  Ruhr  district,  on  what  shall 
constitute  relatively  reasonable  rates  on  iron  ores 
moving  from  the  Saar  to  the  Ruhr  and  on  coke  mov- 
ing from  the  Ruhr  to  the  Saar,  has  for  upward  of 
two  decades  prevented  the  German  iron  and  steel 
industry  from  exploiting  freely  the  largest  iron-ore 
deposits  on  the  Continent  of  Europe,  those  of  the 


SUMMARY  AND  CONCLUSION  461 

Saar  district.  Under  the  free  play  of  competition 
the  Ruhr  iron  and  steel  industries  would  outstrip 
the  Saar  industries,  but  the  State  Railway  Depart- 
ment cannot  permit  that  free  play  of  competition, 
lest  it  expose  the  Government  to  the  charge  of 
favoring  the  Ruhr  industries.  Such  has  been  the 
paralysis  of  the  railways  under  government-made 
railway  rates  that  the  grain,  timber  and  beet  sugar 
producers  of  eastern  Germany,  as  well  as  the  iron 
and  steel  manufacturers  of  the  Ruhr  district,  have 
had  to  resuscitate  river  and  canal  transportation, 
which,  under  the  regime  of  private  ownership  of 
the  railways,  had  promised  in  Germany  to  go  the 
way  of  the  stagecoach,  as  it  has  done  in  the  United 
States.  The  present-day  Germany,  with  its  agri- 
culture, its  manufactures  and  its  trade,  rests  upon 
the  waterways,  not  upon  the  railways,  which  the 
regime  of  government-made  railway  rates  has  re- 
duced to  the  subordinate  position  of  feeders  to  the 
river  and  canal  boats. 

The  trade  jealousy  that  prevents  the  Prussian 
State  Railway  Department  from  making  rates  that 
The  Governments  ^ould  permit  the  agricultural  prod- 
of  Europe  refuse  ucts  and  the  timber  of  eastern  Ger- 
to  promote  Inter-   rnany  to  move  by  rail  into  western 

state  Commerce        ^  ,         r     i  •  i      ^i 

Germany,  also  forbids  the  coopera- 
tion of  the  State  Railway  Departments  of  Germany, 
Austria-Hungary  and  the  Danubian  Principali- 
ties, for  the  purpose  of  securing  the  free  movement 


452  RAILWAY  RATES 

by  rail  into  western  Europe  of  the  agricultural 
products  and  the  timber  of  Austria-Hungary  and  the 
Danubian  Principalities,  or  the  free  movement  to 
the  East  of  the  manufactures  of  western  Europe. 
There  exists  through  rail  connection  between  the 
North  Sea  in  the  northwest  and  the  Black  Sea  in 
the  southeast,  but  it  is  used  mainly  for  the  carriage 
of  passengers  and  the  mails.  The  exchange  of 
merchandise  between  western  and  eastern  Europe 
is  effected  in  the  main  by  means  of  the  Mediterra- 
nean. For  example,  near  Dresden,  on  the  Elbe,  is 
located  a  large  mill  which  grinds  Rumanian  wheat 
exclusively.  Every  pound  of  that  wheat  goes  down 
the  Danube  to  the  Black  Sea,  thence  by  way  of  the 
Mediterranean  to  Hamburg  and  thence  up  the 
Elbe ! 

In  Russia  there  is  the  same  paralysis  of  the  rail- 
ways through  trade  jealousies,  with  the  resulting 
recourse  to  transportation  by  river.  For  example, 
Russia  paralyzes  upon  the  Opening  of  the  Siberian 
the  Siberian  Rail-  Railway,  in  1 896,  the  landed  interests 
"^"-y  of  western  Russia  protested  that  they 

must  not  be  exposed  to  competition  from  the  wheat 
raised  upon  the  cheap  lands  of  Siberia.  They 
succeeded  in  compelling  the  Government  to  place 
prohibitive  charges  upon  the  carriage  of  Siberian 
wheat,  so  that  it  has  been  impossible  adequately 
to  develop  the  enormous  Siberian  wheat  resources. 
Wheat  is  exported  from  Siberia  only  in  years  of 


SUMMARY  AND  CONCLUSION  453 

serious  crop  failures  in  the  countries  which  ordinarily 
supply  western  Europe. 

In  Australia,  under  government  ownership,  trade 

jealousy  forces  each  colony  to  refuse  to  cooperate 

with  its  neighbors  in  the  promotion  of 

Australia's  ^      ,  j    •    j      4.  t^u      4.  i. 

ig^^g^  trade  and  mdustry.     Ine  two  most 

important  colonies,  Victoria  and  New 
South  Wales,  still  maintain  separate  gauges;  they 
raise  materially  the  rates  on  freight  sent  from  one 
colony  to  the  other ;  and  New  South  Wales  refuses 
to  connect  its  railway  lines  in  southwestern  New 
South  Wales  with  the  Victorian  lines,  lest  trade  be 
diverted  from  Sydney  to  Melbourne.  Australia 
still  stands  where  the  United  States  stood  before 
the  Civil  War,  when  the  Legislature  of  New  York 
ordered  that  the  State-aided  Erie  Railroad  begin  at 
a  point  twenty-five  miles  from  New  York,  lest  Jer- 
sey City  be  benefited  by  the  building  of  the  road, 
and  the  State  of  Pennsylvania  refused  the  Baltimore 
and  Ohio  permission  to  build  to  Pittsburg,  lest  the 
trade  of  that  city  be  diverted  in  part  from  Philadel- 
phia to  Baltimore. 

Within  the  separate  Australian  colonies  this 
situation  obtains:  the  export  and  import  trade  of 
each  colony,  as  well  as  a  large  part  of  the  jobbing 
business  and  manufacturing,  is  confined  to  one  sea- 
port city.  Failure  to  adopt  the  American  practice 
of  port  differentials  and  the  American  system  of 
basing  points  has  produced   this  concentration  of 


454  RAILWAY   RATES 

trade  and  industry.  The  trade  jealousy  of  the 
overgrown  seaboard  "metropolis"  is  responsible 
in  part  for  that  failure  to  introduce  port  differentials 
and  establish  basing  points. 

Turning  back  to  Germany,  we  find  that  State- 
made  railway  rates  have  produced  there  also  an 
Government-  extraordinary  concentration  of  trade 
made  Rat^  con-     ^^^   industry  on   the   seaboard   and 

centrate  Trade  "^  , 

and  promote  along  the  nvers  and  canals.  In 
Discrimination  1878  Bismarck  asked  the  Prussian 
Diet  to  authorize  the  State  to  purchase  the  railways 
of  Prussia,  in  order  that  the  State  might,  among 
other  things,  use  the  power  to  make  railway  rates 
for  the  purpose  of  decentralizing  trade  and  indus- 
try. In  1899  and  1901  the  Prussian  Government 
asked  the  Diet  to  authorize  the  building  of  great 
systems  of  canals  for  the  purpose  of  "decen- 
tralizing trade  and  industry!"  Trade  jealousies 
and  a  rigid  system  of  railway  rates,  based  on  the 
distance  principle,  had  so  paralyzed  the  railways 
that  trade  and  industry  had  come  to  rely  mainly 
on  the  waterways.  The  resulting  discrimination  in 
favor  of  places  on  rivers  and  canals,  and  against 
places  served  by  railways  only,  widely  surpasses 
any  local  discrimination  ever  practised  by  an  Amer- 
ican railway.  To  illustrate,  geographically  Mann- 
heim, at  the  head  of  navigation  for  sizable  vessels 
on  the  Rhine,  is  in  the  same  position  as  St.  Louis, 
at  the  head  of  navigation  for  sizable  vessels  on  the 


SUMMARY  AND   CONCLUSION  455 

Mississippi.  In  1900  there  were  carried  into  and 
out  of  Mannheim  7,000,000  tons  of  freight  by  ves- 
sel and  5,300,000  tons  by  rail.  In  that  same  year 
there  were  carried  into  and  out  of  St.  Louis  700,000 
tons  of  freight  by  vessel  and  24,600,000  tons  by  rail. 
Mannheim  is  the  product  of  the  State  ownership 
of  the  railways,  which  system  has  paralyzed  the 
development  of  the  ancient  and  neighboring  city  o^ 
Frankfort  on  the  Main,  immeasurably  better  equipped 
with  capital  than  is  Mannheim.  Again,  the  Gov- 
ernment-made railway  rates  have  driven  the  sugar 
traffic  off  the  railways,  with  the  result  that  Hamburg, 
at  the  mouth  of  the  Elbe,  has  the  monopoly  of  the 
export  of  sugar,  the  largest  item  of  export  from 
Germany.  Bremen  has  absolutely  no  share  in  that 
export  trade.  Again,  under  the  regime  of  private 
railways,  when  bulky  freight  still  moved  by  rail  in 
competition  with  rivers  and  canals,  Bremen  had  an 
enormous  import  trade  in  petroleum.  Under  the 
regime  of  Government-made  rates  Bremen  has  lost 
its  petroleum  trade  to  Hamburg,  which  distributes 
into  the  interior  by  way  of  the  Elbe,  and  to  Mann- 
heim, which  receives  its  petroleum  by  way  of  the 
Rhine.  The  Railway  Department  may  not  give 
Frankfort,  Bremen  and  other  cities  railway  differen- 
tials which  will  put  those  cities  on  a  footing  of 
equality  with  the  cities  served  by  rivers  and  canals, 
for  that  would  be  departing  from  the  hard  and  fast 
scheme  of  rates  based  on  the  distance  tariff  principle. 


456  RAILWAY   RATES 

It  is  because  the  Prussian  Government  cannot  give 
Stettin,  at  the  mouth  of  the  Oder,  railway  differen- 
tials that  would  enable  that  city  in  some  measure  to 
hold  its  own  against  Hamburg,  that  the  Prussian 
Government  proposes  to  parallel  with  a  canal  esti- 
mated to  cost  upward  of  $10,000,000  the  railway 
which  connects  Stettin  with  Berlin.  That  railway 
at  present  is  scarcely  used,  carrying  in  the  course 
of  the  year  less  than  200,000  tons  of  freight  each 
way.  To  employ  the  words  of  the  late  Mr.  von 
Miquel,  who  was  Prussian  Minister  of  Finance 
Government-  f^om  1890  to  1900,  and  was,  after 
7nade  Rates  must  Bismarck,  the  most  successful  Chan- 
be Machine-made    ^^jj^j.  ^^  ^^^  German  Empire,  ''The 

system  of  government  ownership  of  the  railways 
will  break  down  unless  it  shall  prove  possible  to  find 
refuge  from  the  jealousies  and  conflicts  of  local  and 
sectional  interests  behind  the  stone  wall  of  a  system 
of  hard  and  fast  railway  rates  which  admits  of  no 
exercise  of  discretion."  And  the  experience  of 
Germany  has  been  repeated  in  France,  Austria- 
Hungary,  Russia  and  Australia.  No  Government 
that  has  undertaken  to  make  railway  rates,  either 
by  assuming  Government  ownership  or  by  exercising 
a  thoroughgoing  control  over  the  rates  made  by  rail- 
way companies,  has  been  able  to  make  railway  rates 
in  such  a  way  as  to  conserve  and  promote  the  public 
welfare,  if  the  test  be  the  making  of  two  blades  of  grass 
to  grow  where  one  had  been  growing.    Restraint  of 


SUMMARY   AND   CONCLUSION  457 

competition  and  of  trade,  with  failure  to  develop  the 
resources  of  soil  and  of  climate,  everywhere  has  been 
the  result  of  rate  making  by  public  authority. 

When  the  Interstate  Commerce  Commission  was 
created,  under  the  Act  to  Regulate  Commerce,  it 
found  in  existence  in  this  country  a  heterogeneous 
Discrimination  ^^^^  of  railway  rates  made  with  the 
the  Secret  of  Effi-  sole  aim  of  promoting  trade,  of  mak- 
ciency  of  Ameri-     j^g  fwo  blades  of   grass  to  grow  in 

can  Railways  .-,  •,  r  t>w  •       •      •      >  • 

the  place  of  one.  Discrimmation  — 
the  result  of  the  exercise  of  discretion  —  was  the  key- 
stone of  the  situation.  That  discrimination  was  not 
the  result  of  caprice;  it  was  the  result  of  meeting 
with  intelligence  and  courage  the  needs  of  trade  and 
industry.  The  effect  of  that  discrimination  was  a 
heterogeneous  mass  of  railway  rates  that  knit  the 
different  producing,  distributing  and  consuming 
sections  of  this  country  into  a  more  compact  trading 
unit  than  was  to  be  found  anywhere  else  in  the  world, 
and  carried  the  exploitation  of  our  resources  farther 
than  has  been  carried  the  exploitation  of  the  resources 
of  any  other  country. 

The  Act  to  Regulate  Commerce  did  not  forbid  all 
discrimination ;  it  forbade  only  unjust  and  unreason- 
able discrimination.  To  use  the  words  of  the  Su- 
preme Court  of  the  United  States:  ''The  very  terms 
of  the  statute  that  charges  must  be  reasonable, 
that  discrimination  must  not  be  undue  or  unreason- 


458  RAILWAY  RATES 

able,  necessarily  imply  that  strict  uniformity  is  not 
to  be  enforced ;  but  that  all  circumstances  that  rea- 
sonable men  would  regard  as  affecting  the  welfare 
of  the  carrying  companies  and  of  the  producers, 
shippers  and  consumers  should  be  considered  by  a 
tribunal  appointed  to  carry  into  effect  and  enforce 
the  provisions  of  the  act.  .  .  .  The  mere  circum- 
stance that  there  is  in  a  given  case  a  preference  or 
an  advantage,  does  not  by  itself  show  that  such 
preference  or  advantage  is  undue  or  unreasonable 
within  the  meaning  of  this  act."*  In  Interstate 
Commerce  Commission  v.  Alabama  Midland  Rail- 
The  Supreme  ^«>'  Co.,\  the  Supreme  Court  ex- 
Courts  Doctrine  pressed  the  Opinion  that,  within  the 
of  Railway  Rates  iji^itation  that  discrimination  should 
not  be  unjust  or  unreasonable,  it  was  "safe  and  wise 
to  leave  to  the  traffic  managers  the  adjusting  of  dis- 
similar circumstances  and  conditions  to  their  busi- 
ness." Quoting  the  words  of  the  circuit  court  to 
which  the  case  had  been  taken  in  the  first  instance, 
the  Supreme  Court  said:  "The  competition  of  the 
railway  lines  is  not  stifled,  but  is  fully  recognized, 
intelligently  and  honestly  controlled  and  regulated, 
by  the  traffic  association,  in  its  schedule  of  rates. 
There  is  no  suggestion  in  the  evidence  that  the 
traffic  managers  who  represent  the  carriers  that  are 
members  of  that  association  are  incompetent,   or 

*  162  U.  S.  Reports^  218  and  220. 
t  168  £/.  S.  Reports. 


SUMMARY   AND   CONCLUSION  469 

under  the  bias  of  any  personal  preference  for  Mont- 
gomery or  prejudice  against  Troy,  that  has  led  them, 
or  is  likely  to  lead  them,  to  unjustly  discriminate 
against  Troy.  .  .  .  We  do  not  discuss  the  third 
and  fourth  contention  of  the  counsel  for  the  appellant 
further  than  to  say  that  within  the  limits  of  the  exer- 
cise of  intelligent  good  faith  in  the  conduct  of  their 
business,  and  subject  to  the  two  leading  prohibitions 
that  their  charges  shall  not  be  unjust  or  unreasonable 
and  that  they  shall  not  unjustly  discriminate  so  as  to 
give  undue  preference  or  disadvantage  to  persons  or 
traffic  similarly  circumstanced,  the  Act  to  Regulate 
Commerce  leaves  common  carriers,  as  they  were  at 
common  law,  free  to  make  special  rates  looking  to 
the  increase  of  their  business,  to  classify  their  traffic, 
to  adjust  and  apportion  their  rates  so  as  to  meet  the 
necessities  of  commerce  and  of  their  own  situation 
and  relation  to  it,  and  generally  to  manage  their 
important  interests  upon  the  same  principles  which 
are  regarded  as  sound,  and  adopted  in  other  trades 
and  pursuits.  The  carriers  are  better  qualified  to 
The  Carriers  best  adjust  such  matters  than  any  court  or 
qualified  to  adjust  board  of  public  administration,  and. 

Railway  Rates         ^.^j^.^     ^j^^     j.^^.^^     suggested,     it     is 

safe  and  wise  to  leave  to  their  traffic  managers 
the  adjusting  of  dissimilar  circumstances  and  con- 
ditions to  their  business."*  And  in  Texas  and 
Pacific  Railway   Company  v.   Interstate  Commerce 

*  41  U.  S.  App.  453. 


460  RAILWAY   RATES 

Commission*  the  Supreme  Court  quoted  with  ap- 
proval these  words  from  the  opinion  of  an  English 
Court, t  "I  first  observe  that  these  are,  in  my  judg- 
ment, eminently  practical  questions,  and  if  this  court 
once  assumes  the  hopeless  task  of  dealing  with  ques- 
tions of  this  kind  with  any  approach  to  mathematical 
accuracy,  and  tries  to  introduce  a  precision  which 
is  unattainable  in  commercial  and  practical  matters, 
it  would  do  infinite  mischief  and  no  good." 

If  one  accepts,  with  the  federal  courts  and  the 

Supreme  Court,  the  necessity  of  discrimination,  and 

if  one  condemns  discrimination  only 

Unjust  Rates  not         i  -^  •  •      ^  i  i 

Nunurous  when  it  IS  unjust  or  unreasonable,  — 

that  is,  only  when  it  is  not  the  out- 
growth of  the  intelligent  and  honest  regulation  of 
competition,  or  when  it  does  not  arise  from  commer- 
cial conditions  over  which  the  railways  have  no  control, 
—  one  will  find  that  the  existing  American  railway 
rates  do  not  involve  numerous  unjust  discriminations. 
In  the  eighteen  years  of  its  existence  the  Interstate 
Commerce  Commission  has  taken  into  the  federal 
courts  numerous  cases  involving  alleged  unjust  dis- 
criminations ;  but,  so  far  as  the  courts  have  gone  into 
the  merits  of  those  cases,  they  have  almost  without 
exception  held  that  the  rates  in  question  were  not 
improper   and   did  not  result  in  unjust   or  undue 


*  162  U.  S.  Reports. 

t  Phipps  V.  London  and  Northwestern  Railway  Co.,  2  O.  B.  D. 
1892,  229,  236. 


^ 


.SUMMARY   AND    CONCLUSION  461 

discriminations.  The  courts  found  that  the  Com- 
mission's charges  of  undue  preference  or  unjust 
discrimination  were  not  warranted  by  the  facts,  but 
that  they  were  the  result  of  estimating  the  evidence 
under  the  influence  of  ''theories  of  transportation" 
and  "theories  of  social  progress"  for  which  the 
courts  could  find  no  warrant  in  the  Act  to  Regulate 
Commerce. 

The  reason  for  this  existence  of  comparatively 
few  unjust  and  undue  discriminations  lies  in  the 
fact  that  our  railway  rates  are  the  result  of  com- 
promise among  so  many  different  and  conflicting 
interests  that  it  is  not  often  possible  to  do  anything 
very  wrong. 

There  is,  of  course,  no  desire  to  deny  that  there 
are  in  force  adjustments  of  rates  that  have  caused 
Existing  Unjust  Partial  destruction  of  the  trade  and 
Rates  not  made  in  industry  of  particular  places  —  a 
Bad  Faith  destruction    that    might    have    been 

avoided,  if  men  were  less  prone  to  error.  But  very 
rarely  indeed  will  it  be  possible  to  trace  to  bad  faith 
such  destruction  of  trade  and  industry  and  conse- 
quent injustice.  To  the  overwhelming  majority  of 
such  cases  will  apply  the  words  used  by  the  Inter- 
state Commerce  Commission,  when  it  found  that 
injustice  had  been  done  to  La  Crosse,  Wis.,  by  the 
diflferentials  fixed  in  1884  by  Mr.  G.  M.  Bogue, 
as  arbitrator,  for  the  regulation  of  the  competition 
for  the  lumber  traffic  from  La  Crosse,  Winona  and 


462  RAILWAY  RATES 

other  Wisconsin  places,  to  Missouri  River  points. 
Said  the  Commission:  ''This  criticism  of  the  Eau 
Claire  differential  carries  with  it  no  general  impeach- 
ment of  Mr.  Bogue's  decision.  On  the  contrary,  his 
award  deserves  great  commendation.  It  was  an 
intelligent  and  conscientious  judgment,  and  shows 
keen  appreciation  of  the  difficulties  to  be  overcome. 
It  is  not  surprising  that  a  trial  of  eight  years  should 
have  disclosed  ground  for  complaint  on  the  part  of 
some  locality;  the  real  surprise  is  that  a  schedule  of 
rates  was  then  devised  which  has  since  been  ob- 
served by  so  many  roads,  and  has  proved  fairly 
acceptable  to  so  many  communities.  Its  correc- 
tion at  this  time  in  a  single  particular  is  no  dis- 
credit to  its  general  excellence."  *  Of  these  same 
differentials  Mr.  H.  S.  Rand,  President  of  the 
Burlington  Lumber  Company,  of  Burlington,  la., 
said,  before  the  Senate  Committee  on  Interstate 
Commerce,  in  1905:  "Chaos  would  be  a  mild  word 
to  express  the  condition  of  the  Missouri  River  lum- 
ber market  previous  to  1884.  Competition  was  so 
bitter  and  the  methods  employed  so  irregular  that 
both  railroads  and  lumbermen,  finding  themselves 
doing  business  at  a  loss,  held  a  meeting  and  agreed 
on  what  are  known  as  the  'Bogue  differentials,' 
which  were  largely  based  on  the  cost  of  producing 
lumber  at  different  points  (that  is,  they  were  designed 

*  Interstate  Commerce  Reports,  Vol.  V ;    Eau  Claire  Board  of 
Trade  v.  Chicago,  Milwaukee  and  St.  Paul  Railway  Co.  et  al.^ 


SUMMARY  AND   CONCLUSION  463 

to  equalize  the  advantages  and  disadvantages  of 
production  at  different  points).  These  rates  have 
stood  the  test  of  time,  and  have  made  it  a  question 
whether  it  is  cheaper  to  manufacture  next  the  stump 
in  Minnesota  and  Wisconsin  or  at  some  point  on  the 
Mississippi  River."  * 

It  is  true  that  the  Commission  has  merely  the 
power  to  condemn  a  rate  as  unlawful,  and  that  it 
Pmver  to  condemn  ^as  not  the  powcr  to  Substitute  a 
aRateisSuffi-  rate  to  be  charged  in  the  future,  in 
"^^*  place   of   the   rate   which   has   been 

condemned  as  unlawful.  Therefore  it  is  widely 
believed  that  the  railways  could  nullify  an  order  of 
the  courts  sustaining  the  Commission's  condemna- 
tion of  a  rate  as  unlawful,  by  changing  very  slightly 
the  rate  that  has  been  condemned,  and  thus  wear- 
ing out  the  complainant  by  compelling  him  to  bring 
an  endless  series  of  suits.  For  that  belief  there  is, 
however,  no  ground  based  upon  experience.  As 
recently  as  May  20,  1905,  Mr.  Knapp,  Chairman  of 
the  Interstate  Commerce  Commission,  testifying  on 
this  point  before  the  Committee  on  Interstate  Com- 
merce of  the  United  States  Senate,  said:  "The 
carrier  cannot  afford  to  trifle  with  public  authority. 
It  cannot  afford  to  do  a  trivial  and  evasive  thing.  I 
must  honestly  say  that  I  do  not  believe  any  railroad 

*  Compare  also  Hearings  before  the  Committee  on  Interstate  and 
Foreign  Commerce  of  the  House  of  Representatives,  1902,  p.  369, 
Mr.  A.  C.  Bird. 


464  RAILWAY   RATES 

manager  would  make,  under  such  a  theory  as  that, 
a  nominal  change  in  a  rate  for  the  purpose  of  tech- 
nically complying  with  an  order  to  cease  and  desist. 
If  that  was  done  twice  in  this  country,  the  next  ses- 
sion of  Congress  would  fix  it."  * 

Furthermore,  the  procedure  for  the  enforcement 
of  the  Act  to  Regulate  Commerce  is  now  com- 
Prompt  Relief  plete.  ''Any  one  can  file  a  complaint ; 
attainable  under  the  findinsTS  of  the  Commission  are 
Present  Law  prima  jacie  evidence  of  the  facts 
found;  the  courts  act  on  as  short  notice  as  they 
deem  proper  and  proceed  speedily  without  formal 
pleadings  or  proceedings;  the  constitutional  pro- 
tection from  self-crimination  has  been  removed  by 
statute,  so  that  any  one  can  be  compelled  to  testify; 
cases  arising  under  the  statute  have  preference  over 
everything;  individuals  and  corporations  violating 
the  act,  whether  carriers  or  shippers,  are  subject  to 
heavy  fines;  the  provisions  of  the  act  may  also  be 
enforced  civilly  by  decree  in  equity,  with  subsequent 
contempt  proceedings,  involving  fine  and  imprison- 
ment; and  in  all  cases  appeals  lie  directly  to  the 
Supreme  Court.  In  reference  to  no  other  subject- 
matter  does  such  drastic  procedure  exist:  American 
jurisprudence  has  no  further  resources."  f 

*  Hearings  before  the  Committee  on  Interstate  Commerce,  United 
States  Senate,  May  20.  1905.  p.  113. 

t  Interstate  Commerce  Brief,  as  to  Proposed  New  Legislation,  pre- 
pared by  Samuel  Spencer  and  David  Wilcox,  and  filed  with  The 
Committee  on  Interstate  and  Foreign  Commerce  of  the  House  of  Rep- 
resentatives, January,  1905. 


SUMMARY   AND   CONCLUSION  465 

So  far,  then,  as  the  actual  working  of  the  Act  to 
Regulate  Commerce  is  concerned,  there  have  ap- 
Real  Nature  of  peared  no  difficulties  that  call  for 
the  Demand  for  the  bcstowal  upon  the  Commission 
^^^^  of   the   power   to   prescribe   for   the 

future  a  rate  to  take  the  place  of  the  one  that  the 
Commission  has  found  unlawful.  It  is  in  keeping 
with  this  fact  that  the  Commission  itself  has  not 
asked  simply  for  the  power  to  prescribe  a  rate,  in 
accordance  with  the  guiding  principles  laid  down 
in  the  Act  to  Regulate  Commerce,  as  construed  by 
the  Supreme  Court  of  the  United  States.  Nor 
would  the  Commission  and  those  interests  that  sup- 
port the  Commission's  request  for  power  to  fix  a 
rate  be  content  with  that  simple  power.  The 
Commission  asks  for  power  to  fix  a  rate  under  free- 
dom from  several  of  the  guiding  and  restraining 
principles  that  now  restrict  the  Commission's  power 
to  condemn  a  rate  as  unlawful.  For  instance,  the 
Interstate  Commerce  Commission  never  has  become 
reconciled  to  the  Supreme  Court's  construction  of 
the  Act  to  Regulate  Commerce,  to  the  effect  that  it 
is  not  unlawful  to  make  lower  rates  on  agricultural 
produce  when  destined  for  export  than  when  des- 
tined for  domestic  consumption.  Ten  years  after 
the  Supreme  Court  had  reversed  the  Commission 
on  this  point,  the  Commission  reported  that,  if  it  had 
the  power,  it  would  forbid  the  railways  to  discrimi- 


466  RAILWAY   RATES 

nate  permanently  in  favor  of  agricultural  produce 
carried  for  export  * 

Again,  the  Commission  never  has  become  recon- 
ciled to  the  construction  which  the  Supreme  Court 
The Dejnand for  ^^^  P^^  upon  the  words  "under  sub- 
Amendment  of  stantially  similar  circumstances  and 
Long  and  Short  conditions,"  as  they  occur  in  the  so- 
called  ''long  and  short  haul  clause" 
of  the  Act  to  Regulate  Commerce.  The  Supreme 
Court  has  held  that,  "in  determining  the  question 
of  undue  or  unreasonable  preference  or  advantage 
of  what  are  substantially  similar  circumstances  and 
conditions,  the  competition  may  in  some  cases  be 
such  as,  having  due  regard  to  the  interests  of  the 
public  and  of  the  carrier,  ought  justly  to  have  effect 
upon  the  rates ;  and  in  such  cases  there  is  no  absolute 
rule  which  prevents  the  Commission  or  the  courts 
from  taking  that  matter  into  consideration.  .  .  . 
The  mere  fact  of  competition,  no  matter  what  its 
character  or  extent,  does  not  necessarily  relieve  the 
carrier  from  the  restraints  of  the  third  and  fourth 
sections,  but  these  sections  are  not  so  stringent  and 
imperative  as  to  exclude  in  all  cases  the  matter  of 
competition."  The  Commission  holds  that  this 
construction  has  "emasculated"  the  long  and  short 
haul  clause,  and  it  has  in  its  decisions  intimated 

*  Interstate  Commerce  Commission  Reports,  Vol.  VIII :  In  the 
Matter  of  Relative  Rates  upon  Export  and  Domestic  Traffic  in 
Grain  and  Grain  Products  and  of  the  Publication  of  Tariffs  relat- 
ing to  Such  Traffic. 


SUMMARY  AND  CONCLUSION  467 

that  under  that  construction  it  could  not  conserve 
and  promote  the  public  welfare. 

For  example,  the  rate  on  lumber  is  27.5  cents  a 
hundred  from  Camden  to  Wichita,  a  distance  of 
607  miles,  and  23  cents  from  Camden  to  Kansas 
City  and  Omaha,  distances  of  respectively  642  miles 
and  847  miles.  In  1903  this  rate  adjustment  was 
made  the  object  of  a  complaint  before  the  Interstate 
Commerce  Commission,*  and  that  body  rendered 
this  decision:  "There  are  competitive  conditions 
at  Kansas  City,  Omaha  and  Lincoln  not  existing 
at  Wichita,  which  has  produced  the  low  rate  at 
Kansas  City,  and  those  other  points  do  not  control 
the  Kansas  City  rate  and  could  not  advance  it. 
They  do  not,  therefore,  under  the  facts  in  this  case, 
upon  the  holding  of  the  Supreme  Court,  as  set  forth 
in  the  preceding  cases  prosecuted  by  this  same 
complainant,  violate  the  third  or  fourth  section  by 
maintaining  a  higher  rate  at  Wichita." 

The  Commission  then  continued,  "The  Com- 
mission knows  of  no  good  reason  why  those  lumber 
rates  from  southern  mills  should  be  higher  to  Wichita 
than  to  Kansas  City;  but  that  relation  has  been  es- 
tablished and  we  are  apparently  without  power  to 
change  it  under  the  law  as  interpreted  [by  the  Su- 
preme  Court]."     The  words   "under   substantially 

*  Interstate  Conmierce  Reports,  Vol.  IX,  Mayor  and  City  Council 
of  Wichita,  Kansas,  v.  The  Atchison,  Topeka  and  Santa  Fe  Railway 
Co.  et  al. 


468  RAILWAY  RATES 

similar  circumstances  and  conditions"  were  in- 
serted in  the  Act  to  Regulate  Commerce  while  the 
bill  was  before  the  United  States  Senate.  The  Inter- 
state Commerce  Commission  has  sought  to  elimi- 
nate those  words  from  the  Act  by  seeking  to  restrict 
their  application  to  cases  in  which  the  railways  have 
to  meet  water  competition  or  the  competition  of 
foreign  railways,  not  subject  to  the  jurisdiction  of 
the  United  States. 

The  Commission  also  asks  for  power  to  fix  a  mini- 
mum rate  below  which  a  railway  may  not  go.     The 
Commission  asks  for  that  power  in 

The  Power  to  Jix    ^^^^^   ^^^^    -^  ^^   ^^j^   ^^    ^^.^ 

a  Minimum  Rate  ■'  ■' 

with  relation  to  one  another  the  rates 
made  by  entirely  separate  systems  of  railways  leading 
from  common  points  of  origin  to  entirely  different 
destinations,  or  from  separate  points  of  origin  to  com- 
mon markets  or  destinations.  Under  that  power  it 
would  be  possible  for  the  Commission  to  adjust  with 
relation  to  one  another  the  rates  on  grain  made  by  the 
railways  leading  respectively  from  Nebraska  to  the 
Gulf  ports  and  from  Nebraska  to  the  Atlantic  sea- 
board ;  the  rates  on  paper  made  by  the  railways  lead- 
ing respectively  from  northern  Maine  to  Chicago  and 
from  the  Fox  River,  Wis.,  to  Chicago;  the  rates 
on  cotton  from  Memphis  to  the  Carolina  mill  points 
and  to  New  England  respectively.  It  is  obvious 
that  such  power  over  railway  rates  would  give  the 
Commission  precisely  the  same  power  to  check  or 


SUMMARY  AND  CONCLUSION  469 

to  promote  the  trade  and  the  industry  of  the  several 
sections  of  the  United  States  as  would  be  conferred 
on  the  Commission  by  a  law  empowering  that 
body  to  establish  at  its  pleasure  anywhere  within 
the  United  States  protective  tariff  duties  such  as  the 
several  colonies  habitually  established  before  the 
formation  of  the  United  States.  It  is  still  more 
obvious  that  Congress  never  would  enter  directly 
upon  the  policy  of  regulating  the  commerce  among 
the  several  States,  by  thus  reestablishing  customs 
barriers  between  the  several  States.  The  power  that 
Congress,  for  reasons  of  public  policy,  would  not 
exercise  in  its  own  right  should  not  be  bestowed  upon 
an  administrative  bureau,  the  Interstate  Commerce 
Commission. 

This  mere  recital  of  the  avowed  purposes  for  which 
the  Commission  asks  for  the  power  to  substitute  a 
new  rate  for  one  that  it  shall  find  unlawful,  as  well 
Government-  ^^  ^^r  the  removal  of  the  present  re- 
viade  Rates  would  strictions  upon  its  powcr  to  condemn 
restrict  Cotnpeti-    ^  j.^|-g  ^^  unlawful,   shows  that  the 

tion  atid  Trade        ^  .     .  .  ,  .  .  , 

Commission  is  asking  tor  vastly 
more  extended  power  than  it  has  possessed  in  the 
past  —  the  power  to  legislate  upon  great  questions 
of  public  policy.  Furthermore,  the  study  of  the 
decisions  made  by  the  Commission  in  the  past  com- 
pels the  conclusion  that  the  Commission  would 
exercise  that  vastly  augmented  power  in  a  hard 
and  fast  manner  —  that  is,  in  restraint  of  competi- 


470  RAILWAY   RATES 

tion  and  of  trade.  The  trade  rivalries  and  sectional 
jealousies  precipitated  by  the  increase  of  competi- 
tion among  rival  producing  regions,  markets  and 
distributing  points,  resulting  from  the  ever  increas- 
ing elimination  of  distance  through  improvements 
in  the  means  of  transportation,  are  so  fierce  that  no 
public  body  which  undertakes  to  intervene  in  those 
rivalries  and  jealousies  —  beyond  the  point  of  guar- 
anteeing that  they  shall  be  settled  with  intelligence 
and  in  good  faith  —  can  hope  to  escape  the  fate  of 
having  to  seek  refuge  behind  the  stone  wall  of  some 
hard  and  fast  system  of  regulation  which  admits  of 
the  exercise  of  little  or  no  discretion. 

It  was  profoundly  significant  that  the  late  Judge 
Cooley,  the  first  Chairman  of  the  Interstate  Com- 
™.    c-    v:  merce  Commission,   should  have  re- 

The  Significance  ... 

of  Boston  and  fused  to  cxercisc  his  discretion  in  the 
Albany  v.  Boston    f  j-g^  dccision  of  importance  rendered 

and  Lowell  i_        -i         /^  •     •  j     j    t  j 

by  the  Commission,  and  delivered 
by  himself.  Judge  Cooley,  before  he  was  made 
Chairman  of  the  Interstate  Commerce  Commission, 
had  acted  as  arbitrator*  in  the  Atlantic  port  dif- 
ferential controversy  and  in  numerous  other  rate 
controversies  of  great  consequence  and  extreme 
difficulty.     He  knew  as  well  as  any  one  how  fiercely 

*  Report  of  Messrs.  Thurtnan,  Washburne  and  Cooley,  constitut- 
ing an  Advisory  Comtnission  on  Differential  Rates  by  Railroads  be- 
tween the  West  and  the  Seaboard,  reprinted  in  Hearings  before  the 
Committee  on  Interstate  Commerce,  United  States  Senate,  April  27, 
1905. 


SUMMARY   AND   CONCLUSION  471 

such  controversies  are  waged,  that  there  are  no  scien- 
tific principles  by  means  of  which  such  controversies 
can  be  laid  at  rest,  that  the  only  thing  to  be  done  is 
to  effect  a  compromise  and  that,  whatever  disposal 
is  made  of  the  question  at  issue,  one  or  more  of  the 
parties  to  the  controversy  will  be  dissatisfied.  There- 
fore, when  he  was  called  upon  to  construe  the  words 
"under  substantially  similar  circumstances  and 
conditions,"  occurring  in  the  so-called  long  and 
short  haul  clause,  he  refused  to  hold  that  the  con- 
ditions under  which  the  Vermont  Central  carried 
traffic  from  Boston  to  Detroit  differed  substan- 
tially from  the  conditions  under  which  it  carried 
traffic  from  Boston  to  St.  Albans,  though  there  was 
compelling  and  controlling  railway  competition  at 
Detroit  but  not  at  St.  Albans.  He  said  that,  if  the 
Commission  should  exercise  its  discretion  in  this 
instance,  it  would  find  it  exceedingly  difficult,  if  not 
impossible,  to  draw  the  line  in  the  future.  If  the 
Commission  should  suspend  the  operation  of  the 
long  and  short  haul  clause  for  the  purpose  of  facili- 
tating competition  on  the  part  of  a  roundabout  line 
between  Detroit  and  Boston,  it  would  be  called  upon 
to  suspend  operation  of  the  clause  for  the  benefit 
of  an  endless  number  of  roundabout  lines.  Ulti- 
mately some  one  would  ask  permission  to  establish 
a  roundabout  line  between  Boston  and  Chicago  by 
way  of  Newport  News,  or  between  Chicago  and  St. 
Louis  by  way  of  St.  Paul.     It  would  be  impossible 


472  RAILWAY  RATES 

to  draw  the  line  between  legitimate  roundabout  lines 
and  illegitimate  ones,  once  the  floodgates  were  opened. 
Therefore  Judge  Cooley  wrote  an  opinion  in  which 
he  condemned  an  adjustment  of  rates  which  he  ad- 
mitted was  to  the  interest  and  the  advantage  of  all 
the  parties  to  the  controversy,  the  complainants 
included.* 

The  verdict  of  the  experience  of  the  countries  of 
Continental  Europe  and  of  Australia,  as  well  as  the 
verdict  of  the  experience  of  the  United  States,  under 
both  the  federal  Interstate  Commerce  Commission 
and  the  several  State  commissions,  is  unmistakable. 
It  is  impossible  for  the  State  to  conserve  and 
promote  the  public  welfare  by  intervening  in  the 
regulation  of  railv\'ay  rates,  beyond  the  point  of 
seeking  to  abolish  secret  personal  discriminations, 
guaranteeing  that  all  rates  shall  be  reasonable  per  se, 
and  providing  that  those  rates  which  involve  the 
question  of  relative  reasonableness  shall  embody 
compromises  which  were  made  with  intelligence  and 
in  good  faith. 

*  T/t€  Boston  and  Albany  Railroad  Co.  v.  TJte  Boston  and  Lowell 
Railroad  Co.,  et  al.^  in  Interstate  Commerce  Reports,  Vol.  I. 


INDEX 


Act  to  regulate  commerce  passed  to  pro- 
mote, not  throttle,  trade,  440;  forbade  only 
unjust  discrimination,  457-8 

Agrarians  opposed  to  the  canals,  106 

Agricultural  and  mining  interests  demanded 
lower  transportation  rates,  100 

Agricultural  interests  of  western  Germany 
opposed  to  tapering  rates,  31 

Agricultural  lands.  Speculation  in,  by 
landed  aristocracy  of  Prussia,  71;  devel- 
opment of,  in  eastern  Russia  prevented, 
168 

Agricultural  products,  East-bound  traffic  in, 
288-90 

Agriculture  in  Prussia  fostered  by  exception 
tariffs,  35 

Alsace-Lorraine,  Rates  on  iron  ores  of,  21; 
not  lowered  out  of  consideration  for  other 
iron  centres,  24:  large  empty  car  mileage 
from,  to  the  Ruhr,  28 

American  railway  rate  practices.  Need  of, 
in  Russia,  175 

Anthony  Salt  Co.  et  al.  v.  The  Missouri 
Pacific  Railway  Co.  et  al.,  Orders  in  case 
of,  410  13,  416 

Anti-JMonopoly  League  forced  New  York 
Central  to  meet  competition,  221 ;  secured 
investigation  of  railroad  abuses,  226  N, 
227;  doctrines  of  the,  381 

Argentine  Republic,  Meat  from  the,  in  com- 
petition with  American  wheat,  212;  wheat 
from  the,  a  competitor  of  American  in  the 
Liverpool  market,  339-40 

Associated  Railways  of  the  Virginias  and 
Carolinas,  291 

Atkinson,  Edward,  Estimate  of,  as  to  saving 
in  cost  per  bushel  of  wheat  sent  to  Liver- 
pool, 212-3 

Atlantic  ports,  Competition  of  the,  reduces 
railway  rates,  231 

Atlantic  seaboard.  Struggle  of,  with  Central 
West  for  trade  with  Southeastern  States, 
306-10;  for  Pacific  coast  trade,  315-7; 
railroads  of,  fail  to  defeat  the  Gulf  roads, 
251 

473 


Augusta,  Ga.,  Competition  between  Cincin- 
nati and  eastern  cities  for  carriage  trade 
of,  358-61 

Australia,  189-200;  railway  competition  in, 
a  struggle  of  the  terminal  ports  for  su- 
premacy, 189;  the  Australian  situation  and 
the  United  States,  190-1,  313;  adjustment 
of  rates  in,  192-4;  "the  curse"  of,  ig6; 
absence  of  basing-point  system  in,  294-5, 
299 ;  the  lesson  of,  453 

Austria-Hungary  and  the  Danubian  prov- 
inces, 133-62 ;  imports  from,  restricted  by 
Germany,  137-8;  tariff  quarrel  with  Ru- 
mania, 138;  no  growth  in  railways  of, 
142-3;  agricultural  interests  of,  conflict 
with  sectional  and  class  interests,  158; 
lumber  traffic  of,  into  the  Elbe  territory, 
159;   imports  from  the  Elbe  territory,  160 

Austrian  practice  liberalized  by  competition 
of  private  companies,  136 


Back-hauling  or  back-loading,  400-1,  430 

Baku,  Petroleum  industry  at,  184 

Balkan  peninsula  connected  with  railways 
of  western  Europe,  140;  condition  of  its 
peoples,  143 

Ballarat,  Wholesale  trade  in,  injured  by 
tapering  rates,  195 

Baltic  seacoast  region,  64-5 

Baltimore  and  Ohio  extends  to  Chicago, 
220;  exempted  from  taxation  by  Mary- 
land, 232 

Baltimore  competes  for  grain  trade,  219;  has 
first  grain  elevator  on  Atlantic  coast,  232; 
improves  facilities  for  handling  traffic, 
252;  differentials  allowed  to,  290;  discrim- 
inating rates  from,  on  imports  for  interior, 
326-7;   imports  and  exports  of,  337 

Basing-point  system,  decentralizes  trade, 
196,  292-3,  295-7;  builds  up  cities  in  the 
South,  Middle  States,  and  the  West,  197; 
economy  of  the,  198,  298-302 ;  at  the  South, 
291-4;  effect  of  its  absence  in  Australia, 
294-5;  efforts  of  the  Interstate  Commerce 
Commission  to  destroy,  349-79;   adapted 


474 


INDEX 


to  development  of  a  virgin  country,  350-1 ; 
Z'crsus  distance  tarifiT  in  transcontinental 
traffic,  418 

Beet  sugar,  Haulage  charge  on,  in  Germany, 
11;  tapering  rates  on,  called  for  by  the 
manufacturers  of  Silesia,  12-3;  dispute 
between  producers  of  Silesia  and  those  of 
the  Rhine  and  Elbe,  13-5;  traffic  in,  on 
railways  and  waterways,  15;  special  rates 
made  on  Russian,  15;  export  rates  re- 
duced, 15-6;   harvesting  excursions,  16 

Belgian  canals  and  rivers,  30 

Belgian  ports.  Rebates  to,  63  N 

Belgian  State  railways,  Rebates  on,  64  N 

Berlin,  Roundabout  route  of  coal  from  the 
Ruhr  to,  39;  railway  and  canal  traffic  to, 
44;  traffic  with  Upper  Silesia,  45,  46  N, 
50;  charges  on  petroleum  from  Hamburg 
to,  56  n;  canal  from  Stettin  to,  proposed, 
88;  more  remote  from  the  Rhine  than 
from  New  York  for  purposes  of  trade, 
118 

Bird,  A.  C,  on  contest  between  Milwaukee 
and  Minneapolis,  403-5 

Birmingham  and  Atlanta,  Rates  from  Cen- 
tral West  to,  adjusted,  300 

Bismarck  and  free  trade,  72 

Black  Sea  ports,  £xx>orts  and  imports 
through   the,   144 

Bohemia  and  Moravia,  Shipment  of  sugar 
by  rail  and  river  from,  to  Hamburg, 
158-9;  coal  traffic  into  the  Elbe  territory, 
159-60 

Bond,  H.  L.,  Jr.,  on  Ojmmission's  order 
regarding  rates  to  southern  points,  428 

Borries,  Mr.  von,  on  cost  per  ton-mile  of 
long-distance  traffic  by  rail,  121 

Brandenburg,  Traffic  of,  with  Upper  Silesia, 
45.  46  N,  47 

Break  journey  rates  in  Australia,  199 

Bremen  exports  no  sugar,  54;  loses  petro- 
leum trade,  54-5,  55-6  N;  gets  cut  rates 
from  Prussian  Government,  55;  discrimi- 
nations against,  56;  ships  materials  to 
interior  of  Germany  by  way  of  Hamburg 
and  other  ports,  57;  import  and  export 
trade  of,  destroyed,  313 

Breslau,  River  freight  from,  to  Berlin, 
Hamburg,  and  Stettin,  44  s,  50 

Buchenbcrger,  A.,  on  migration  of  laborers, 
19-20 

Buffalo,  Connections  of,  with  the  far  West, 
313 

Bulgaria,  Exports  and  imports  of,  144; 
grain  trade  of,  144-6;  cattle  and  bog  rais- 
ing in,  147 


Callaway,  S.  R.,  on  rates  on  grain  for  ex- 
port, 325  N 

Canal  agitation.  Railway  corporations  would 
have  quelled,  by  lowering  rates,  24-5 

Canal  and  river  transportation  not  cheaper 
than  by  rail,  120;  burden  the  taxpayer, 
129 

Canal  bills  of  Prussia,  The  recent,  93-122; 
reasons  for  advocating,  98-104;  debate  on, 
in  the  Diet,  104-8  ;  became  a  party 
measure,  107;  rejected  by  the  Diet,  108; 
a  second  bill,  109;  higher  duties  on  grain 
demanded  in  return  for  party  vote  for, 
iii;  given  up  by  the  Government,  115; 
the  bill  of  1904,  118 

Canal  tolls.  Graded,  proposed,  101-2 ;  regu- 
lation of,  112,  113  N 

Canals  in  France,  128-31 

Canals,  The  proposed,  in  Prussia,  would 
break  the  local  interest  deadlock,  27; 
Government's  aim  to  decentralize  industry 
by  means  of,  60 

Canals,  to  unite  the  Elbe,  Danube,  Oder, 
Vistula  and  Dniester,  160-1 

Car-load  carrying  capacity  increased,  62; 
traffic  handled  at  lower  rates,  62;  rebate 
on   coal   shipped  from  Ruhr  district  by, 

63  N 

Car-load  lots,  New  York  protests  against 
rates  in  favor  of,  226 

Carpathian  oil  fields  not  aided  by  railways 
of  Germany,  148-9;  roundabout  ship- 
ments from  the,  149 

Carriers  best  judges  of  rates,  364-7X, 
459;  forced  by  competition  not  liable,  374, 
376,  378 

Cars,  large.  Obstacles  to  use  of,  78-9;  ca- 
pacities of,  79  N 

Cattle  and  hogs.  Tariff  quarrel  over,  be- 
tween Germany,  Austria-Hungary  and 
Rumania,  137-8,  146-7 

Cattle  business.  Competition  of  markets  in 
the,  285-7 

Cement,  Customs  duty  on,  offset  by  dis- 
criminating import  rate,  341 

Central  West,  Development  of  industries  in 
the,  308-9 ;  railways  of,  demanding  read- 
justment of  rates,  309;  demands  distance 
tariff  for  southern  trade,  423-31 

Centres,  interior  jobbing,  Absence  of,  in 
Australia,  198;  rise  of,  in  United  States, 
224 

Chamber  of  Commerce,  New  York,  on 
division  of  railway  traffic  from  interior 
to  Atlantic  seaboard,  191 ;  and  New  York 
Central  on  the  competition  of  Baltimore 


INDEX 


475 


and  Philadelphia,  221;  reports  New  York 
most  expensive  city  in  which  to  do  busi- 
ness, 223 ;  on  New  York's  right  to  jobbing 
trade,  226 

Charges  on  grain  for  export  reduced,  320; 
relative,  on  grain  for  domestic  use  and 
for  export  investigated,  342-5 

Charges  on  waterways  of  Germany  one-third 
less  than  total  of  railway  freight  receipts, 

52 

Charges,  transportation.  Right  adjustment 
of,  important  to  development  of  United 
States,  214 

Charging  what  the  traffic  will  bear,  86, 
304-6;   Schwarz  and  Strutz  on,  91 

Charleston,  S.  C,  Rates  from  the  West  to, 
300 

Chattanooga,  Discriminations  against,  in 
favor  of  Nashville,  371-3,  376-7 

Chicago  and  St.  Louis  v.  The  Pacific  Coast, 
314-8 

Chicago  Board  of  Trade  v.  The  Chicago 
and  Alton  Railroad,  409 

Chicago  fights  against  diversion  of  wheat 
trade  by  northern  and  southern  routes, 
247;  a  primary  grain  market,  280;  a 
market  for  poultry  and  dairy  products, 
284;  losing  ascendency  in  packing  busi- 
ness, 287;  contends  for  Pacific  coast  trade, 
315;  has  another  controversy  on  its  hands, 
429-31 

Cincinnati  a  primary  grain  market,  280;  a 
market  for  poultry  and  dairy  products, 
284;  rates  to  and  from,  290 

Coal  shipments  from  Ruhr  district,  38; 
special  rates  from  Ruhr  to  Berlin,  39; 
shipments  from  Ruhr  to  Rotterdam,  63  N ; 
special  rates  on,  to  meet  foreign  competi- 
tion ,  64 

Coal  traffic  on  Rhine  and  by  railways,  38 

Colorado  Fuel  and  Iron  Co.  v.  The  South- 
ern Pacific  Co.  et  al..  Order  of  Commis- 
sion in  case  of,  417 

Commercial  treaty  with  Russia,  Abolition 
of  tapering  rates  the  price  of  votes  for 
the,  7 

Commission  established  in  Australia  to  de- 
cide on  rates,  192 

Commissioners,  Railway,  agree  upon  divi- 
sion of  Riverina  traffic,  190 

Commodity  rates,  304-6,  314-6 

Compensations  opposed  by  Mr.  von  Miquel, 
102-3  •  demands  for,  favored  by  Prince  zu 
Hohenlohe  and  the  King,  103-4,  109-10 

Competition,  The  workings  of,  242-79;  be- 
tween Chicago  grain  dealers  benefits  the 


producer,  248 ;  for  markets  promotes  rail- 
way efficiency,  252;  results  of,  in  wheat 
traffic,  256;  restriction  of,  the  cause  of 
local  prices,  2S4;  traffic  associations  regu- 
late, 289  91,  306-10;  menace  to  trade  in 
regulation  of,  413.  See  also  Cattle  Busi- 
ness, Grain  Markets,  Live  Stock 

Competition  of  Atlantic  ports  reduces  rail- 
way rates,  231 

Competition  of  ports  threatened  to  defeat 
federation  in  Australia,  192 

Competitive  points,  3 

Concentration  of  business  the  result  of  Gov- 
ernment rates,  67;  of  trade  and  population 
in  a  few  cities  in  Australia,  195;  the  effect 
of  absence  of  basing  points,  295 

Conflict  of  sectional  and  class  interests, 
104-9,  122 

Congress  did  not  intend  to  throttle  trade, 
332 

Conservative  Party,  The,  and  the  Govern- 
ment in  Prussia,  on  the  canal  bills,  107-8; 
objects  of  alliance  with  the  Catholic  Party, 
113-4 

Cooperation,  Inevitable  breakdown  of  large- 
scale,  91 

Corn,  How  crop  of,  is  disposed  of,  325  n; 
increase  of  area  under,  and  of  exports, 
345-6 

Corn-belt,  Cattle-feeding  in  the,  285;  Texas 
and  the  Pacific  coast  competitors,  286 

Cost  of  service  theory  breaks  down,  44r-5 

Cotton,  Problems  in  markets  and  rates  of, 
261;  New  Orleans  demands  distance  tariff 
on,  263;  comparative  movement  of  coast- 
wise and  overland,  263  N;  rates  lower  to 
Boston  and  New  York  than  to  the  mills  in 
the  Carolinas,  267 

Cummins,  Albert  B.,  on  Iowa  industries, 
408-9 

Customs  duties  and  canal  question  discussed 
in  Prussian  Diet,  1901,  no 

Dairy  industry  of  the  United  States  and  the 
railways,  157-8;  of  the  Middle  West  in 
competition  with  the  East,  216 

Danube,  The,  the  great  highway  to  the 
Black  Sea,  144;  traffic  on  the,  in  Hun- 
gary, 150-2 

Danubian  provinces.  Products  of,  in  com- 
petition with  those  of  Prussia,  135-6; 
German  trade  with,  checked,  139;  pack- 
ing-house products  of,  have  no  market, 
148 

Danzig,  Chamber  of  Commerce  of,  in  sugar 
dispute,  14 


476 


INDEX 


Decentralization,  Failure  to  produce,  in 
Prussia,  66;  encouraged  by  the  basing- 
point  system  in  the  United  States,  196; 
in  Australia  and  the  United  States,  300 

Depew,  Chauncey  M.,  Argument  of,  on  dis- 
tance tariff,  326  K 

Detroit  a  primary  grain  market,  280 

Diet,  Government  officials,  members  of, 
removed  by  the  King,  log 

Differentials,  Prussian  Government  may  not 
grant,  68;  New  York  Central  fights  for 
abolition  of,  igi;  in  Australia,  192;  in 
favor  of  Philadelphia  and  Baltimore  to 
compete  with  New  York,  220;  fight  against, 
continued  for  years,  224;  represent  a  con- 
dition of  armed  peace,  290-1 ;  granted  to 
St.  Louis  railways,  311 

Discrimination  in  favor  of  competitive 
points,  3;  local  and  personal,  in  Prussia, 
34;  in  favor  of  districts  with  waterways, 
47;  against  beet-sugar  crop,  53;  in  re- 
spect to  grain,  53;  against  points  not  on 
waterways,  53 ;  in  favor  of  large  shippers, 
62,  64 ;  personal,  made  by  water  traffic, 
64;  increase  of,  in  waterway  traffic,  66; 
in  favor  of  grain  grown  west  of  the  Mis- 
sissippi, 251 ;  the  secret  of  efficiency-, 
457 

Distance,  Doctrine  that,  must  not  be  anni- 
hilated, 361 

Distance  tariff.  Inherent  defect  of,  4;  result 
of  Government  control  in  Prussia,  90; 
demanded  by  eastern  farmers  on  western 
farm  produce,  218;  against  the  West  de- 
manded by  New  York  State,  227:  fight 
for,  in  New  York  State,  231;  demanded 
on  cotton  by  New  Orleans,  263;  relative 
prosperity  regulated  by,  399,  402;  ruling 
of  Interstate  Commission  based  on,  410-13 ; 
versus  basing-point  system  in  transconti- 
nental traffic,  418;  demanded  by  Central 
West  for  southern  trade,  423 

Distances  from  New  York  to  five  western 
cities,  312  N 

District  Railway  Councils,  21  n,  25;  investi- 
gate cost  of  producing  iron  with  view  to 
lower  rates,  22 

Dortmund-Ems  canal,  99,  113;  extensions 
of,  rejected  by  the  Diet,  108;  in  new  bill, 
118 

Drave,  Transportation  by  the  river,  150-1 

Duluth,  Protests  against  development  of, 
243 ;  rates  to,  from  the  East  made  same  as 
to  Chicago,  245;  growth  in  wheat  trade  at 
expense  of  Chicago,  246:  a  primary  grain 
market,  280;    gets  equal  rates  on  wheat 


with  Minneapolis,  398-9:  natural  advan- 
tages of,  399 
Duties,  Protective,  handicap  railways,  40 

East,  Railway  traffic  with  the,  prevented 
by  the  national  jealousies  of  Europe,  142 

East  Tennessee,  Virginia,  and  Georgia  Rail- 
way Co.  et  al.  V.  Interstate  Commerce 
Commission,  Supreme  Court  on  case  of, 
371-8 

East,  The  industrial,  of  the  United  States, 
dependent  on  the  agricultural  West,  213 

Eastern  markets,  Germany  makes  vain  effort 
to  reach  by  rail,  139 

Efficiency,  Modem  standards  of  railway, 
wanting  in  Germany,  76-81;  could  be 
had,  87 

Elbe  territory,  Imports  and  exports  of  the, 
159-60 

Elbe,  The,  conquers  the  railway,  40; 
transportation  charges  by  the,  50;  aids 
manufactures  in  Saxony,  Anhalt  and 
Brunswick,  53 

Emden  opposed  the  canal,  105-6 

Erie  canal  directed  bulk  of  grain  traffic 
to  New  York,  219;  attempts  to  protect, 
against  railways,  231;  management  of,  by 
State,  corrupt  and  inefficient,  234 

Esch-Townsend  Bill,  The,  402,  405,  414 

Europe,  Demand  for  American  wheat  in, 
forced,  211;  millions  of  people  from,  give 
market  in  United  States  its  industrial 
products,  314;  nations  of, engaged  in  tariff 
wars,  240 

Europe,  eastern.  Importation  of  staple  prod- 
ucts of,  into  western  Europe  hindered, 
136;  low  rates  in  Germany  on  goods  for, 
140;  not  developing,  143 

Exception-rate  traffic  in  Prussia,  1889-99, 

36  N 

Exception  rates  on  German  railways,  50; 
receipts  from  and  percentage  of  traffic,  51 ; 
not  as  low  as  water  rates,  52 

Exception  tariffs  provided  for  in  Prussia, 
34;  principles  to  guide  railway  depart- 
ment in  making,  laid  down,  35 

Expenses,  Operating,  independent  of  vol- 
ume of  business  done,  84 

Export  bounty  and  protective  tariff  on 
grain  in  Germany,  lo-ii 

Export  rates  on  grain  vary  through  competi- 
tion, 250 

Export  trade,  German,  encouraged  by  ex- 
ception tariffs,  35 

Exports  of  Germany,  11  N,  96-7,  98;  to 
Holland,  40  n 


INDEX 


477 


Exports  of  wheat  and  corn  from  United 
States,  Increase  of,  254;  average  annual 
of  wheat,  253  n 

Fall  in  rates  and  in  prices,  No  correspond- 
ence between,  in  Germany,  93;  compari- 
son between  Germany  and  the  U.  S., 
93-6 

Farm  lands.  Decline  in  price  of,  in  the  East, 
rise  in  price  in  the  West,  217-8 

Farm  price  of  wheat  comes  nearer  to  Chi- 
cago price,  249;  average  of,  253  n;  con- 
trolled by  Liverpool  price,  255 

Farm  prices  of  grain,  1872-1900,  209  n;  ad- 
justment of  American,  to  Liverpool  prices, 
284 

Farm  products,  western,  conquer  Euro- 
pean markets,  208 

Farmers,  eastern,  demand  distance  tariiT 
on  western  farm  produce,  218 

Farmers,  small,  Double  action  of  Prussian 
Government  toward,  17 

Farmers,  western,  Service  of  railways  to, 
177;  market  for,  considered,  205;  reduc- 
tion in  railway  rates  solved  living  prob- 
lem for,  209;  versus  New  York  City,  320; 
versus  Interstate  Commerce  Commission, 
258,  342 

Farming,  Expansion  of,  in  the  West,  204; 
diversified,  impracticable  in  West,  210  ; 
rotation  of  crops  in  East,  216 

Federation,  Conventions  to  frame  a  plan  of, 
in  Australia,  192;  threatened  with  defeat 
by  competition  of  the  ports,  192 

Financial  crash  and  depression  in  United 
States,  263 

Finow  canal.  Traffic  density  of,  43 

Floating  cotton,  Practice  of,  introduced  by 
the  railroads,  265 

Food-stuffs,  Trade  with  the  South  in, 
awarded  to  the  Middle  West,  307 

France,  State  regulation  of  rates  of  private 
railways  in,  123-32 ;  changes  of  rates  re- 
ferred to  local  chambers  of  commerce, 
123  ;  competition  restricted,  124  ;  taper- 
ing and  special  rates  in,  125  ;  fall  of 
prices  in,  125  ;  level  of  prices,  126  N 

Freedom  in  trade,  Railways  regulate  rates 
to  promote,  238 

Freight  cars.  Work  done  by,  in  the  Ruhr 
district,  83-4 

Freight  traffic,  average  revenue  from,  per 
ton  per  mile  carried,  209  N 

Fruit  and  vegetable  raisers  of  the  east- 
em  United  States  and  the  railways, 
157-8 


Galveston,  Adjustment  of  rates  to,  303;  ex- 
ports of  wheat  and  corn  from,  249  N 

Geographical  position.  No  place  to  be  de- 
prived of  advantages  of,  380-5;  this  doc- 
trine in  Germany,  387;  Interstate  Com- 
merce Commission  on,  392,  395-6,  407, 
410-13,  416,  417,  433-4 

German  railways.  Common  scheme  of 
charges  adopted  by,  3 

Germany  and  the  United  States  in  the 
world's  markets,  94-5 

Germany,  Distant  markets  in,  reached  only 
by  water,  8-9  ;  exporting  grain  from 
eastern  provinces  while  importing  into 
Rhenish  Prussia,  lo-ii;  apportionment  of 
trade  of,  29;  rates  based  on  a  uniform 
haulage  charge,  30;  rates  that  would  tend 
to  make  a  common  market,  32;  trade  of, 
with  Holland  by  water,  39;  stringent 
measures  against  cattle  and  hogs  from 
Austria-Hungary,  137;  checkmated  by 
Hungarian  statesmen,  139;  establishes 
the  Levant  tariffs,  140;  iron  industry  of, 
and  that  of  United  States,  268,  274 

Germany,  Industrial,  dependent  on  water- 
ways, 51;  development  of,  96-7;  com- 
petition in  the  world's  market  vital  to, 
98;  agrarians  opposed  to,  106 

Government  control  in  France  results  in 
inelastic  rates,  125 

Government  control  in  Prussia  concentrates 
trade  and  population,  60,  74;  means  dis- 
tance tariff.  90 

Government  regulation  in  Russia  drives 
traffic  to  waterways,  182 

Government-made  rates,  effect  of,  454-6; 
would  restrict  competition  and  trade,  469 

Governments  of  Europe  refuse  to  promote 
interstate  commerce,  451 

Grain,  Haulage  charges  on,  reduced  for 
Rhine  Provinces,  6;  opposition  in  Sax- 
ony, 6-7;  limit  of  carriage  by  rail  for 
home  consumption,  8;  how  Ruhr  dis- 
trict is  supplied  with,  8-9;  higher  duties 
on,  could  not  be  granted,  iii;  elevator 
at  Baltimore  reduces  cost  of  handling, 
232;  amount  of,  shipped  from  Chicago, 
Duluth  and  Superior,  246  n;  handling 
of,  in  Chicago,  247;  grown  south  ex- 
ported by  way  of  Gulf  ports,  250;  factors 
controlling  farm  price  of,  255;  Interstate 
Commerce  Commission  discriminates 
against  trans-Mississippi,  394 

Grain  markets,  primary,  of  the  United 
States,  The  ten  most  important,  280; 
division  of  traffic,  281-2;  adjustment  of 


478 


INDEX 


rates,  282-3;  o^  prices,  284;  jobbing  and 
trading  centres,  288 

Grain  of  eastern  Europe,  Rates  for,  133- 
5;  how  it  finds  its  way  to  Germany, 
144  5 

Grain  rates,  Sectional  interest  and,  5;  spe- 
cial, removed,  35;  in  Northwest  decline 
through  rate  war,  242;  to  seaboard  from 
west  of  the  Mississippi,  250 

Granger  legislation  in  Wisconsin,  243 

Great  Lakes  outlet  for  Wisconsin  and 
Minnesota  to  Atlantic,  242;  tonnage  of 
American  vessels  on  the,  244  N 

Group  rates  build  up  largest  creamery  in 
the  world,  388;  extended  to  southern 
truck  farmers,  390;  condemned  by  Com- 
mission in  Northwest,  393 

Gulf  ports  handle  trade  of  Central  West 
and  Southwest,  249;  growth  of,  340,  342; 
securing  export  business  of  grain,  429: 
have  advantage  of  Chicago  and  Atlantic 
ports,  430 

Hamburg,  The  sugar  trade  at,  12-13; 
traffic  of,  with  Upper  Elbe  territory,  41  n, 
42  n;  with  Austria-Hungary,  43;  sugar 
and  freight  shipped  from  Breslau  to,  44  N ; 
traffic  with  Upper  Silesia,  46  n;  makes 
larger  trade  connections  with  Austria- 
Hungary  than  Bremen,  57;  outstripping 
all  rivals,  68;  opposed  the  canal,  105 

Harvesting  excursions  and  their  benefit  to 
the  peasants,  16 

Haulage  charge,  3;  difficulty  of  adjusting 
unit  of,  4;  petition  to  reduce,  on  grain 
denied  in  1888  in  Prussia,  5;  reduced  in 
1891,  5-6;  restored,  7 

Hepburn  committee  to  investigate  railroad 
mismanagement,  227;  report  of,  226  N; 
indorses  spirit  of  local  interest,  230 

Hines,  Walker  D.,  on  Commission's  order 
regarding  rates  to  southern  points,  426-8 

Holdzkom  v.  Michigan  Central,  Opinion  of 
Commission  in,  357 

Hungary,  Discrimination  by  Railway  De- 
partment of,  against  Austrian  manufac- 
tures, 137;  makes  railway  rates  a  tariff 
barrier,  137;  traffic  density  on  the  rivers 
of,  151;  of  the  railways,  151-2  ;  unable 
to  meet  competition  in  the  markets  of 
western  Europe,  152-3;  markets  for  the 
oak  timber  and  prunes  of,  155-6 

Illinois  Central  and  other  roads  endeavor  to 
develop  Gulf  ports,  249;  terminal  facili- 
ties in  New  Orleans,  252;  answer  of,  to 


order  of  Interstate  Commerce  Commis- 
sion, 336 

Illinois  State  Railroad  Commission  fixes 
rates  to  protect  Illinois  jobbers,  235 

Imports  and  exports  of  the  countries  of  the 
world,  95  n;  of  Germany,  97  n 

Industrial  readjustment  aided  by  railways, 
207 

Industries,  Southern,  encouraged  by  low 
rates,  304-6 

Industry,  Westward  trend  of,  opposed,  405; 
irresistible,  409-10 

Interstate  Commerce  Commission,  The, 
disapproves  basing-point  system,  197; 
versus  the  western  farmer,  258 ;  unsoOnd 
reasoning  of  the,  260;  versus  interior 
jobbing  points,  295-7;  decisions  of  the, 
319-439;  ordered  discriminating  rates  re- 
moved, 322-3;  characteristic  attitude  of, 
323;  order  set  aside  by  decision  of  Su- 
preme Court,  326;  versus  Philadelphia, 
Baltimore  and  New  Orleans,  326-9;  de- 
cision of  Supreme  Court  against  the, 
329-37;  order  in  effect  a  law  of  wide 
import,  335;  answer  of  Illinois  Central 
Railway  Co.,  336;  of  Pennsylvania  Rail- 
road Co.,  336-7;  ordered  to  inquire  into 
rates  on  import  and  domestic  traffic,  337  - 
41;  versus  the  western  farmer,  342-5; 
takes  little  cognizance  of  development  of 
resources,  trade  and  industries,  346-7; 
its  theories  of  social  progress  condemned, 
347-8;  its  doctrine  of  adjustment  of  rail- 
way rates,  351;  opinion  on  Central  Ver- 
mont Railroad  Co.'s  rate  to  Detroit  and 
local  rates,  352-7;  reversed  by  the  Su- 
preme Court,  356;  unwilling  to  take  hold 
of  troublesome  problems,  356-8;  advo- 
cates a  yardstick  adjustment  of  railway 
rates,  362;  rates  to  Troy,  Ala.,  held  to 
be  relatively  unjust,  364;  ruling  reversed 
by  the  courts,  365-71 ;  order  on  rates  to 
Chattanooga  and  Nashville,  372;  over- 
ruled on  basing-point  system,  378-9; 
versus  Louisville  and  Nashville  Railroad 
Co.,  379;  tries  to  preserve  monopolies 
due  to  location,  381-7;  broke  up  group 
rate  on  milk  for  New  York,  382;  effect  on 
one  railroad,  387;  on  the  Mobile  and 
Ohio's  group  rate  on  vegetables,  390-2; 
on  the  Northern  Pacific's  group  rate  on 
wheat,  393-4;  discriminates  against  trans- 
Mississippi  grain,  394-5;  opens  Pandora's 
Box,  397-439;  orders  rates  changed  for 
Duluth  and  Minneapolis,  399-401 ;  fails 
to  settle  contest  between  Milwaukee  and 


INDEX 


479 


Minneapolis,  403-5;  orders  for  and 
against  geographical  position,  407,  409; 
ruling  on  carriage  of  salt,  410-13;  on  dis- 
tance tariff  on  iron  and  steel  and  other 
commodities,  417-8;  not  sustained  in 
courts,  418;  ruling  on  distance  rates 
offends  Pacific  coast  interests,  420-3;  in 
the  Maximum  Rate  Case,  424;  order 
on  rates  from  Cincinnati  and  Chicago  to 
southern  points,  425-31 ;  assumption  of 
dispensing  power,  431-6;  on  the  milling 
interests  of  Texas,  431-3;  asks  for  more 
power,  465,  468-70.  See  also  Introduc- 
tion 

Intra-State  railway  rates,  made  by  State 
commissions  south  of  the  Ohio  and 
Potomac,  23s 

Iowa  State  railroad  commission  fixes  rates 
to  protect  State  interests,  235;  on  the 
pork-packing  industry,  407-8 

Iron  Gate  canal,  149 

Iron  industry.  History  of  the,  268-78; 
shifts  from  East  to  West,  269:  new  cen- 
tres on  Lake  Superior  and  in  South,  271; 
ore  goes  to  coal  or  coal  meets  ore,  273 

Iron  ore  fashioned  at  Chicago,  Joliet  and 
Milwaukee,  212 ;  from  Cuba  manufactured 
near  Baltimore,  276 

Iron-producing  regions.  Jealousy  of  com- 
peting, keeps  rates  from  being  reduced, 
22-3,  25;  opinion  of  Baron  von  Stumm  on, 
26;  block  action  by  the  Government,  28 

Iron  traffic  from  Alsace-Lorraine  to  the 
Ruhr,  24,  28;  by  water  and  rail  to  Ruhr, 
38 

Jencke  on  reduction  of  railway  rates,  20-2, 
24-6;  chairman  of  Executive  Committee 
of  Krupp  and  Co.,  21 

Jobbers,  Rise  of,  in  interior,  225 

Jozon,  Mr.,  against  railways  lowering  rates, 
131 

Kansas  City  a  primary  grain  market,  280; 

a  market  for  poultry  and  dairy  products, 

284 ;  for  cattle,  285-6 
Kansas  City,  Pittsburg  and  Gulf  Railroad, 

Successful  struggle  of,  for  share  in  traffic, 

311-13 

Laborers  and  the  renten-gueter,  16-17; 
movement  of,  to  Rhenish  Prussia  and 
Westphalia,  18;  wages  in  the  Ruhr  dis- 
trict, 18  n;  Buchenberger  on  migration 
of,  19-20 

Laborers'  return  passenger  tickets,  16-17; 


objected    to,  by   landed  aristocracy  and 
withdrawn,  17;    issuing   of,   questionable 
public  policy,  20 
Lespinats,  M.  de,  on  the  railway  rates  of 

France,  130 
Leutenot,  or  scarcity  of  labor,  18 
Liberal  Party,  The,  and  the  canal  bills,  107 
Lincoln  creamery  made  possible  by  group 

rates,  388-9 
Live  stock,  Supply  of,  for  the  United  States, 

285;  competition,  285-7 
Liverpool,  Price  of  wheat  falls  off  in  1898, 
254;  world's  market-price  established  at, 
255 ;  adjustment  of  American  farm  prices, 
to  prices  at,  284 
Local  interests,  The  conflict  of,  3-33 
Localization  of  trade  and  industry,  30 
Location,    Equalizing   advantages   of,    im- 
possible, 435 
Long-  and  short-haul  principle  violated  by 

basing-point  system,  197 
Long-and-short-haul  clause  of  Act  to  Regu- 
late Commerce,  295;    discussed,  349-79; 
demand  for  amendment  of,  466-8 ;  Judge 
Cooley  on,  470-2 
Longer  haul.  When    competition   justifies 

lower  rate  on  the,  371-8 
Lumber,  Established  rates  on,  414-6 
Lumber  industry.  Competition  for  markets 
and  rates  in  the,  287-8 

McGovern,  Mr.,  on  adjustment  of  rates, 
301-2 

Magdeburg,  Chamber  of  Commerce  of,  in 
sugar  dispute,  14 

Mannheim,  a  great  trade  centre,  57;  most 
important  wheat  market  of  continental 
Europe,  58;  takes  coal  from  Ruhr  dis- 
trict by  way  of  the  Rhine,  58 ;  total  freight 
receipts  at,  59;  an  extreme  example  of 
local  discrimination,  60 

Manufacturers,  American,  have  advantage 
over  foreigners  in  home  market,  240; 
going  to  the  Orient,  415-6 

Manufacturers'  and  Producers'  Association 
of  California,  Resolutions  of  the,  421-3 

Manufacturers  in  Melbourne,  Sydney  and 
Adelaide  oppose  decentralization,  200 

Market,  German,  Response  of,  to  reduc- 
tions in  cost  of  transportation,  149 

Markham,  M.  C,  on  adjustment  of  rates, 
302-4 

Melbourne,  Tapering  rates  favor  merchants 
in,  194,  200 

Merchandise  and  manufactures,  West-bound 
traffic  in,  288-90;  trade  with  the  South  in. 


480 


INDEX 


awarded  to  the  Atlantic  seaboard,  307: 
distribution  of  eastern,  over  the  West, 
310-13 

Merchants  and  manufacturers,  German, 
Industry  of  the,  89 

Mileage,  Percentage  of  total  railway,  of 
United  States  in  hands  of  receivers,  208  N 

Mileage  rates  in  Texas,  236 

Milk  and  cream,  Group  rate  on,  shipped  to 
New  York,  381-7 

Milk  Producers'  Protective  Association, 
Gjmplaint  of  the,  381-2 

"Milling  in  transit"  rates  in  Australia,  199 

Milling  interests  of  Missouri  and  Kansas 
V.  Texas,  431-9 

Milwaukee  a  primary  grain  market,  280 

Milwaukee  and  Minneapolis,  Commission 
orders  rates  between,  readjusted,  403; 
without  result,  404-5 

Minneapolis  a  primary  grain  market,  280; 
alarmed  at  prosperity  of  Duluth,  397; 
complains  of  rate  discrimination,  398-9: 
natural  advantages  of,  399;  asks  that 
Commission's  order  be  not  enforced,  402 

Miquel,  Mr.  von,  on  rates  under  State  own- 
ership, 90;  on  canals,  99;  opposes  reduc- 
tion in  railway  rates,  and  compensations, 
102-3;  on  second  canal  bill,  112;  resigna- 
tion, 115;  on  one  common  head  for  rail- 
ways, 1 1 5-6 

Mobile  and  New  Orleans,  Rates  to,  300-1, 
302 

Mobile  and  Ohio  Railroad  Co.  applies  group 
rates  to  vegetables,  389-90;  the  Commis- 
sion on  the,  391-2 

Montgomery,  Ala.,  a  trade  centre  or  basing-  I 
point,  364,   367;    rates   to,  controlled  by 
water  rates,  368  I 

Montgomery  and  Selma,  Rates  to,  302,  303 

Montreal,  Railroads  from,  make  discrimi- 
nating rates  on  imports  for  interior,  326-7  | 

Morrison,  Commissioner,  on  the  milling 
interests  of  Texas,  433-6 

National  Railway  Council,  Composition  of 
the,  21  N,  25;  reported  in  favor  of  lower 
rates  on  Saar  iron  ores  to  Ruhr  district, 
27 ;  demanded  reduction  of  rates,  74-5 

Nationalization  of  railways  to  abolish  dis- 
crimination, 65 

"Natural  rights"  to  trade,  315-7 

New  Orleans,  Exports  of  wheat  and  com 
from,  249  n;  demands  distance  tariff  on 
cotton,  263-4;  Cotton  Exchange  com- 
plains of  floating  cotton,  265;  railroad 
rates  to  and  from  St.  Louis  fixed  by  the 


Mississippi  River,  302;  from  Chicago  and 
other  points  to,  303-4;  discriminating 
rates  on  imports  for  interior,  328 

New  South  Wales  refuses  to  connect  lail- 
way  lines  with  Victorian  lines,  193 

New  York  Board  of  Trade,  Report  of  a 
committee  of,  on  the  Quarles-Cooper 
Bill,  423-5 

New  York  Central  attacked  by  Anti-Monop- 
oly League,  221 ;  carries  grain  for  i  J  mills 
per  ton-mile,  251 

New  York  City,  Opposition  of,  to  sharing 
export  and  import  trade  with  other  cities, 
191 ;  protests  against  rise  of  Philadelphia 
and  Baltimore,  221 ;  against  interior  job- 
bing centres,  224;  long  export  monopoly 
makes  tolls  high,  233;  versus  the  western 
farmer,  320;  supply  of  milk  and  cream 
to,  381-7;  group  rate  on,  381;  rate  on, 
382;  the  "natural  demand"  must  not  be 
exceeded,  385-6 

New  York  Produce  Ejcchange  applied  to 
Interstate  Commerce  Commission  for 
relief,  321;  unsound  argument  of  the, 
324 

New  York  State  farmers  and  lumber  dealers 
demand  distance  tariff  against  the  West, 
227 

Nbrdling,  Mr.,  on  canals  in  Austria,  161 

Northern  Pacific  Railroad  made  group  rate 
on  wheat  shipped  to  Portland,  Ore.,  393; 
broken  up  by  the  Commission,  394 

Oder,  The,  relieves  Silesia,  46 

Omaha,  a  cattle  market,  285-6;    distances 

and  rates  from  five  cities  to,  415  N 
Ownership,  State,  means  rates  under  hard 

and  fast  rules,  90 

Pacific  coast,  Chicago  and  St.  Louis  versus 
the,  314-8 

Pacific  Coast  Jobbers'  Association  claims 
the  trade  of  the  Pacific  coast,  316-7, 
419-26 

Panama,  Isthmus  of,  value  of  merchandise 
shipped  from  New  York  to  San  Francisco 
via  the,  314  N 

Penalizing  rates  in  Australian  colonies,  193 

Pennsylvania  Railroad  Co.,  Investigating 
committee.  205;  extends  to  Chicago,  219; 
answer  of,  to  order  of  Interstate  Com- 
merce Commission,  336-7 

Petroleum,  Bremen  loses  trade  in,  to  Ham- 
burg, 54;  shipped  by  rail  from  Bremen 
to  Austria  and  Saxony,  55  n  ;  charges  for 
carriage  from  Hamburg  to  other  points. 


INDEX 


481 


56  n;  imported  into  Bremen,  Hamburg 
and  Mannheim,  56  n;  imports  of,  into 
Rumania,  149 

Philadelphia,  Baltimore  and  New  Orleans, 
Railroads  of,  make  discriminating  rates 
on  freight  from  Europe  for  the  interior, 
326-7 

Philadelphia  competes  for  grain  trade,  219; 
differentials  allowed  to,  290 

Pig  iron,  Transportation  charges  25  per 
cent  of  cost  of  making,  23;  as  against  10 
per  cent  in  England,  23  and  N;  product 
of,  in  Ruhr  and  Saar  districts,  28;  in 
Great  Britain,  Germany  and  the  United 
States,  95;  in  Ruhr  district  and  Silesia, 
100;  increase  in,  of  Middle  West  and 
South,  271 

Pittsburg  a  market  for  poultry  and  dairy 
products,  284 

Politics  and  railway  revenue  in  Prussia, 
71;  and  the  transportation  questions,  107; 
in  railway  management,  116-7;  American 
not  unlike  German,  276 

Population,  Government  control  concen- 
trates, 60;  increase  of,  96-97  N,  98;  in 
the  West,  204 

Pork-packing  at  Chicago,  405-7,  409;  at 
Missouri  River  points.  407-9 

Port  differentials,  440-8;  the  Commission 
on,  441-4;  the  Boston  Herald  on,  446-7 

Posen,  How  grain  may  go  from,  to  the 
Ruhr  district,  8-9;  how  the  sugar  crop 
of,  went  to  market,  13  n;  Chamber  of 
Commerce  of,  on  the  Galician  oil  fields, 
148 

Postage-stamp  rates  in  Texas,  236 

Poultry,  eggs  and  dairy  products.  Rates 
and  prices  of,  adjusted,  284-5 

Preferential  rates  in  Australia,  192 

Private  companies  liberalize  Austrian  prac- 
tice, 136 

Problem  of  railway  rates.  The,  449-50 

Producers,  Large,  operate  own  freight  ves- 
sels, 64 

Production,  Initial  cost  of,  reduced,  98 

Profits,  railway.  Sudden  and  violent  fluctu- 
ations of,  70 

Progress,  Protests  against  the  growing 
pains  of,  216-41 

Property  values  disturbed  by  changes  in 
trade  routes  and  distributing  centres,  219 

Protection  and  regulation  of  railway  rates, 
134;  sentiment  for,  in  Europe,  137;  ten- 
dency toward  inter-provincial,  278 

Prussia,  Exports  and  imports  of,  to  and 
from  Holland,  40  n;  refuses  to  promote 


transcontinental  traffic,  134;  paralyzes 
the  railways,  450-1 

Prussian  Government  unwilling  to  favor 
one  iron  district  more  than  another,  23-4; 
should  reduce  haulage  charges  on  all  raw 
materials,  25-6;  alarmed  at  iron  and  steel 
competition  from  America,  28;  embar- 
rassed by  politics,  33;  has  treated  rail- 
ways as  a  source  of  revenue,  25,  33; 
promised  not  to,  69-70;  dependence  of, 
upon  railway  revenue,  80;  proposed 
graded  canal  tolls  to  protect  its  railways, 
loi 

Prussian  Railway  Department  made  special 
rates  on  Russian  sugar,  15;  established 
export  tapering  rates,  15;  laborers'  return 
passenger  tickets,  16-7:  influenced  by 
Prussian  landowners,  147 

Prussian  railways  consolidated  in  order  to 
promote  trade,  31;  traffic  carried  at  ex- 
ception rates,  35;  technical  and  financial 
situation  of  the,  86;  political  situation, 
90;  not  run  on  business  principles,  90; 
average  receipts  of,  per  ton-mile,  94  n; 
may  not  charge  flexible  rates,  98;  con- 
tribute little  to  industrial  growth,  98 

Quarles-Cooper  Bill,  Report  of  the  New 
York  Board  of  Trade  on  the,  423-5 

Railroad  building  encouraged   by  basing- 

point    system,    198;     progress    in,    from 

1867-80,  204 
Railroads  make  improvements  because  of 

keen  competition,  252 
Railway  Advisory  Council  in  France,  124; 

refused   to   grant    permission    to    reduce 

rates,    125;    protest  to,  against  railways 

lowering  rates,   131 
Railway  charges.  Excessive,  impediment  to 

trade  in  Hamburg,  Brandenburg,  Berlin 

and  Upper  Silesia,  47 
Railway  earnings.  Dependence  upon,  firmly 

established,  74;  net  earnings,  75-6 
Railway  efficiency.  Competition  for  markets 

promotes,  252 
Railway  management.  Each  colony  in  Aus- 
tralia retains  its  own,  193 
Railway  managers,  American,  Success  of, 

in  relieving  places  from  disadvantages  of 

location,  361-2 
Railway  men,  German,  Capacity  of,  90 
Railway  property.  Earning  power  of,  291, 

292  n;  profit  on,  298-9 
Railway  rates,  discriminate  against  foreign 

cities   in    Germany,   45;    inflexible,    cut 


4^2 


INDEX 


under  by  river  craft,  52;  under  control  of 
Prussian  government,  66:  Government 
would  not  listen  to  reductions  in,  102-3, 
112;  public  regulation  of,  means  hard 
and  fast  rates,  122:  made  tariff  barrier  by 
Hungary,  137 ;  adjustment  of,  in  Australia 
stubbornly  contested,  192;  decline  in,  on 
wheat,  208;  on  grain,  reduced  by  compe- 
tition of  export  cities,  231;  erect  barriers 
in  European  trade,  240-1;  adjustment  of, 
280-318;  divisions  of  traffic,  281-2;  inter- 
dependence of,  302;  made  by  the  forces 
of  trade  and  commerce,  310;  complexity 
of  the  problem  of,  illustrated  by  the  West, 
310-13 

Railway  revenue  and  politics  in  Prussia,  71 

Railway  revenue  and  technical  efficiency, 
69-92 

Railway  systems,  State,  results  of  refusal 
of  cooperation,  133-4 

Railways  as  mere  feeders  to  waterways,  82; 
average  receipts,  per  ton-mile,  94  n;  para- 
lyzing effect  of  State  ownership  of,  161 ; 
what  cooperation  would  do  for  those  of 
Germany,  162;  of  New  South  Wales, 
Victoria  and  South  Australia  in  competi- 
tion for  wool  traffic,  1S9;  regulate  rates 
to  promote  freedom  in  trade,  238-41 ;  the 
first  into  the  West,  310-11 

Rate-making,  political  versus  commercial, 
86 ;  legislative,  disastrous  politically,  115 ; 
relation  of,  to  local  interests,  238 

Rates,  based  on  what  traffic  will  bear,  31, 
37 ;  how  Germany  would  be  benefited  by, 
32;  special,  on  imported  grain  and  flour 
removed  in  Prussia,  33;  freight  rates  on 
the  Rhine,  37;  reduced  on  iron  ore,  coke 
and  coal,  75;  inelastic,  result  of  govern- 
ment control  in  France,  125;  prohibitive 
on  Siberian  wheat,  172;  based  on  relative 
distances,  290;  equal  mileage  rates,  292; 
competitive  rates  to  basing  points,  292; 
tapering  rates,  293;  in  territory  south  of 
the  Ohio  and  Potomac,  301-5 ;  commodity 
rates,  304-6,  314-5;  prohibitory  rates, 
307-10;  elasticity  of  American,  313; 
export  and  import,  319-48;  lower  rates 
on  products  for  export  than  for  domes- 
tic consumption,  319;  benefit  to  the 
farmer,  320;  eliminate  middlemen, 
320-1;  discriminating  rates  ordered 
removed,  322-3;  protest  from  the  West, 
325;  discrimination  in  favor  of  im- 
port; destined  for  the  interior,  326-9; 
ordered  stopped  by  Interstate  Commerce 
Commission,  328  9;  how  controlled  from 


Liverpool  and  London  to  San  Francisco, 
329-32;  Commission  ordered  to  inquire 
into  rates  on  import  and  domestic  traffic, 
337-8;  relative,  on  domestic  and  export, 
investigated,  342-5 ;  unjust  discrimination 
prohibited,  343-4;  discriminating  rates  an 
important  aid  to  manufacturers  and  ship- 
pers, 348;  intelligence  of  railways  in 
discriminating,  350-1;  competition  a 
troublesome  factor  in  rates,  357;  ideal 
railway-rate  practice,  361;  compromises 
always  unsatisfactory,  363-4;  carriers  best 
judges  of,  364,  369-70,  459;  when  lower 
rate  on  longer  haul  is  justified,  371-8; 
rates  on  milk  for  New  York,  381-2 ;  group 
rates,  388-94:  discriminating  rates  on 
com  for  export,  394;  adjustment  of,  on  a 
distance  basis,  399-401;  on  Kansas  and 
Michigan  salt,  410-13;  discussion  of  rela- 
tive reasonableness  of,  413-20;  on  lumber, 
414-6;  distance  tariff  on  iron  and  steel, 
417;  on  other  commodities,  418;  agita- 
tion over  transcontinental,  418-20;  dis- 
tance rates  on  southern  trade,  425-31; 
unjust,  not  numerous,  460-1;  existing, 
not  made  in  bad  faith,  461-2;  power  to 
condemn  sufficient,  463;  prompt  relief 
attainable,  464 

Rebates,  Secret,  in  coal  shipments,  63 

Receipts,  Average,  per  ton-mile  on  water- 
way traffic,  49;  on  railways  at  exception 
rates,  51 

Refrigerator  cars,  216 

Regulation  of  commerce  by  men,  not  by 
law,  430,  436-9 

Reid,  G.  H.,  on  preferential  and  differential 
rates,  192;  calls  concentration  the  "  curse 
of  Australia,"  196,  295 

Rente  Jt-gueter,  16-17 

Reval  shipping  port  on  the  Baltic  for  Sibe- 
rian wheat,  172;   rates  to,  173 

Revenue  railway.  How  disposed  of  in 
Prussia,  69-74 

Rhenish  Prussia,  Contest  for  the  grain  trade 
of,  6-7 ;  farther  from  eastern  Germany  as 
to  trade  than  from  New  York,  10;  import- 
ing from  Russia  and  America,  11 

Rhine  and  Elbe,  Protest  of  sugar  producers 
of  the,  against  those  of  Silesia,  13-4 

Rhine,  The,  supplants  the  railway,  37-8, 
49;  how  transportation  charges  on,  are 
fixed,  49 

Rhine-Elbe  canal  proposed,  77  n,  79 

Ripley,  E.  P.,  on  adjustment  of  rates,  363-4 

Riverina,  the  great  wool-producing  centre 
of  Australia,  189 


INDEX 


483 


Rochester,  Transfer  of  flour-milling  industry 
of,  to  Milwaukee,  409 

Ruhr  district,  How  grain  from  East  and 
West  Russia  goes  to,  8-9;  the  greatest 
coal,  iron  and  steel  producing  region  of 
Europe,  20  ;  wants  reduced  rates  on  Saar 
iron  ores,  23,  25;  iron  traffic  of  Alsace- 
Lorraine  with,  24;  claims  for  lower  rates 
substantiated,  27;  territory  supplied  with 
iron  and  steel  by,  29;  coal  and  ore  ship- 
ments from  the,  38;  total  trade  of,  39; 
railroads  of  the,  unable  to  handle  traffic, 
77,87,99;  poor  equipment  of,  80-1 ;  Mr. 
Todt  on  the  condition  in  the,  83-5 ;  con- 
flict between  the  industries  of  the,  and 
those  of  other  centres,  105-6 

Rumania,  Grain  from  western,  135;  tariff 
quarrel  of,  with  Austria-Hungary,  138; 
freight  charges  on  the  Danube  in,  144-5; 
grain  of,  finds  its  way  to  Germany,  145; 
failure  of  its  cattle  trade  with  western 
Europe,  146-7 

Rumanian  farmer,  Cost  to  the,  of  deficient 
railway  service,  145 

Russia,  163-88;  State  control  exercised  in 
two  ways,  163;  tapering  rates  on  grain, 
164-5;  agricultural  interests  of  central, 
protected,  165-7;  revision  of  grain  rates, 
166-8;  export  of  grain,  via  the  Baltic 
ports,  167;  receipts  per  ton-mile,  168; 
Mr.  de  Witte's  efforts  for  the  export 
traffic,  170-1;  arguments  of  the  opposi- 
tion, 171-2;  tapering  rates  on  railways, 
172-5;  compared  with  United  States, 
177-8;  competition  of  railways  for  com- 
mon markets,  182;  river  traffic,  183-5; 
petroleum  industry  at  Baku,  184;  operat- 
ing expenses  of  railways  reduced,  185;  to 
the  interest  of  producers  that  railways 
supersede  waterways,  185-6;  value  of 
competing  railways,  187;  need  of  more 
railways,  188;  paralyzes  the  Siberian 
Railway,  452 

Russia,  Commercial  treaties  between  Ger- 
many and, 108 

Russian  peasant.  The,  and  the  American 
farmer,  180;  condition  of  the,  186-7 

Russian  railway  management  shows  sec- 
tional issues,  165-8 

Saar  district,  Production  of  pig  iron  in  the, 
28;  supplies  iron  and  steel  to  southern 
Germany  and  Switzerland,  29;  Govern- 
ment refused  reduced  rates  on  ores  of,  to 
the  Ruhr  district,  23 

St.  Louis,  a  primary  grain  market,  280;  a 


market  for  poultry  and  dairy  products, 
284;  for  cattle,  285-6;  rates  to  and  from, 
290,  302-3;  contends  for  Pacific  coast 
trade,  315-6;  supplied  with  vegetables 
under  group  rates,  389-90 

St.  Louis  and  Chicago  v.  the  Pacific  Coast, 
314-8 

St.  Paul  merchants  establish  branch  houses 
in  Duluth,  243 

Salt,  Commission's  ruling  on  carriage  of, 
410-13;  handicap  on  salt  from  Michi- 
gan, 412 

Save,  Transportation  by  the  river,  150-1 

Saxony  opposed  to  tapering  rates  on  grain 
from  eastern  Prussia,  6-7;  coal  miners 
of,  feared  invasion  of  Ruhr  coal,  106 

Schulze-Govenitz,  Mr.  von,  on  transporta- 
tion charges  in  Russia,  167 

Scouring  in  transit  rates  in  Australia,  199 

Sectional  conflicts.  Reappearance  of,  in 
Prussia,  104 

Sectional  protection,  desire  to  reestablish, 
in  Germany,  by  means  of  regulation  of 
railway  rates,  31 

Servia  refused  railway  access  to  the  ./Egean 
Sea,  140-1 ;  trade  of,  shifting  to  the  ocean 
route,  141;  exports  and  imports  of,  144-5; 
grain  and  cattle  trade  of,  145-7 

Shippers,  large.  Discrimination  in  favor  of, 
62;  have  advantage  in  water-borne  traffic, 
66;  small,  have  difficulty  in  securing  low- 
est rates,  67 

Shipping  interests  on  the  Elbe  and  Oder  in 
sugar  dispute,  14-5 

Siberia  would  respond  to  stimulus  of  low 
railway  rates,  178-80;  might  be  made  like 
the  West  of  the  United  States,  177;  the 
creameries  of  Siberia,  178-9 

Siberian  wheat,  prohibitive  rates  on,  172; 
shipped  from  Reval  on  the  Baltic,  172-3; 
efforts  to  turn  shipments  to  Archangelsk 
on  the  White  Sea,  174-5;  acreage  of, 
175-6 

Silesia,  The  sugar  producers  of,  ask  for 
tapering  rates,  12-3;  dispute  with  pro- 
ducers on  the  Rhine  and  Elbe,  13-4; 
markets  of  the  iron  and  steel  producers 
of,  29 ;  relieved  by  the  Oder,  46 

Smith,   G.    W.,   before   Committee   on   In- 
terstate and  Foreign  Commerce,  423-5 
Social  progress.  Theories  of,  versus  condi- 
tions and  facts,  345-8 
South  German  States,  Government  owner- 
ship in,  123  N 
South,  Manufacturing  industries  of  the,  en- 
couraged by  low  rates,  304-6 


484 


INDEX 


Southern  Pacific  Railway,  cut  rates  on  im- 
ports from  Europe,  328 

Southern  Trade,  Central  West  demands 
distance  tariff  for,  423-31 

Special  rates  on  German  coal  to  Dutch 
ports,  37 

Special  tariff  III  traffic  in  Prussia,  36  v, 
receipts,  50-1 

Spencer,  Samuel,  on  Commission's  order 
regarding   rates   to   southern   points,  428 

State  railway  commissions  apply  principles 
of  protection,  235,  238:  disregard  claims 
of  neighboring  states,  239 

Steel  and  iron  markets.  International, 
United  States  not  considered  a  competi- 
tor in  the,  96;  table  of  production  of 
steel,  96  N 

Sterne,  Simon,  champions  the  doctrine  of 
advantage  of  proximity  to  market,  218; 
on  the  rights  of  New  York  City,  222,  229; 
on  transportation  charges,  232;  Simon 
Sterne  and  his  doctrine  from  the  Middle 
Ages,  381 

Stettin  V.  Hamburg,  43;  losing  trade 
to  Hamburg,  44  :  sugar  and  freight 
shipped  from  Breslau  to,  44N:  proposed 
government  remedy,  45  ;  export  trade  of, 
ruined,  133 

Stumm,  Baron  von,  in  the  Reichstag,  on 
the  conflicts  of  sectional  interests,  26: 
the  great  rival  of  the  Krupps,  26 

Sugar  rates,  Conflict  over,  11;  reduced  on 
railways,  51 

Sugar  trade  of  Hamburg  and  Bremen,  54 

Sugar  traffic  from  Breslau  by  river,  44  N 

Supreme  Court  of  the  United  Sutes  on  the 
Act  to  Regulate  Commerce,  xi  v-xvi ;  opin- 
ion in  Texas  Pacific  Railroad  Co.  v.  The 
Interstate  Commerce  Commission,  329-37, 
343 ;  reversed  decisions  of  the  Commis- 
sion, 347-8;  overrules  the  Commission, 
356;  on  competition,  365-6;  on  a  lower 
rate  on  a  longer  haul,  371-8;  upheld 
basing-point  system,  378-9;  its  doctrine 
of  railway  rates,  458-9 

Surpluses,  Prussian  Railway,  to  be  paid 
into  a  sinking  fund,  69;  application  to 
current  expenses  made  legal,  71;  heavily 
drawn  on,  74;  danger  of  falling  off,  100 

Sympher,  Mr.,  on  cost  per  ton-mile  to  han- 
dle long-distance  traffic  by  water,  121 

Tank  cars  for  oil  receive  special  rates,  55 
Tank  vessels  on   Rhine,  Elbe,  Oder,  take 

petroleum  traffic  from  railways.  55 
Tapering   rates  in  France,  4,  125-6;  oppo- 


sition to,  in  Germany,  4,  5,  31 ;  applied  in 
Prussia,  6;  discontinued,  7;  called  for, 
by  sugar  manufacturers,  12-3  ;  estab- 
lished. 15;  cause  conflicts  of  sectional 
interests,  26;  benefits  of,  32;  concentrate 
trade  in  seaboard  cities,  194;  railways  in 
United  States  began  with,  196 

Tariff  barrier  made  by  railway  rates  in 
Hungary,  137;  against  American  wheat 
in  European  cities,  212 

Tariff,  Protective,  on  grain  in  Germany, 
lo-ii;  on  iron  ore  to  hamper  domestic 
iron  interests,  276 

Taussig,  Professor,  on  work  of  railway  in 
iron  industry,  274;  on  tariff  on  iron  ore, 
277 

Terminal  charge,  3-4 

Texas  Pacific  Railroad  Co.  v.  The  Inter- 
state Commerce  Commission,  Decision  of 
Supreme  Court  in,  329-37,  343;  answer 
of  the  company,  329-31 

Texas  seeks  indirectly  to  regulate  interstate 
commerce,  266;  milling  interests  of,  pro- 
tected by  a  differential,  431-6 

Texas  State  Railroad  Commission  pro- 
tects State  interests,  236;  complains  of 
low  rates  on  cotton  to  Atlantic  pons^  266; 
changed  interstate  rates,  438-9 

Thielen,  Mr.  von.  on  tapering  rates,  7-8 

Thomas-process  iron  produced  more  cheaply 
in  Ruhr  than  in  Silesia,  30 

Thurber,  F.  6.,  and  the  Anti-Monopoly 
League,  381 

Timber  and  lumber.  Eastern  provinces  with 
difficulty  find  a  market  for  their,  loi ;  V. 
Kurs  on  shipment  of,  loi  N;  river  car- 
riage of,  from  Hungary  to  Bavaria,  151; 
marketing  of,  a  ques:ion  of  transportation 
charges.  153-4;  limited  market  for  Bohe- 
mian and  Carpathian,  in  Germany,  154-5 

Todt,  Mr.,  on  the  iron  traffic  from  Alsace- 
Lorraine  to  the  Ruhr,  and  what  it  might 
be,  24;  argument  of,  in  favor  of  canal 
proposals,  77-80;  on  railway  rates,  83-5 

Trade  and  Industry,  Localization  of,  30 ; 
in  United  States  fostered  by  basing-point 
system,  197 

Trade,  Government  control  concentrates, 
60;  rivalries  among  the  colonies  of  Aus- 
tralia, 190  ;  menace  to,  implied  in  regu- 
lation of  competition,  413 

Traffic,  Long-distance,  needs  development, 
in  Germany,  36;  distribution  of,  between 
railways  and  waterways,  37,  48  n;  table 
of  Prussian,  37  s:  between  Hamburg  and 
upper-Elbe  territory,  41  n,  42  n  ;  between 


INDEX 


485 


Hamburg  and  Austria,  42;  by  rail  and 
water  between  Upper  Silesia  and  Berlin, 
Brandenburg  and  Hamburg,  46  N ;  to  and 
from  Mannheim,  59  n;  to  and  from  St. 
Louis,  59  N ;  increase  in  railway,  76-8, 
86,  89;  in  Ruhr  district,  83-5;  an  enor- 
mous, could  be  secured,  86;  embarrassing 
to  the  Government,  100;  cost  of  long- 
distance, by  rail,  120-1;  by  water,  121; 
Government  statement,  121 ;  of  the  water- 
ways of  France,  127  n;  cost  of,  129;  by 
rail,  129:  failure  of  a  transcontinental, 
between  eastern  and  western  Europe,  134, 
142,  148;  invites  cooperation  of  European 
states  in  railway  development,  159;  den- 
sity of,  upon  the  Elbe,  Oder,  and  Danube, 
161-2;  ceaseless  effort  to  develop,  in 
United  States,  241;  east-  and  west-bound, 
regulated  by  traffic  associations,  288-91; 
four  traffic  divisions  of  the  United  States, 
389;  traffic  associations  regulate  competi- 
tion, 289-91 ;  partition  of  trade  effected  by 
the,  306-10;  twelve  cents  a  ton  will  turn 
heavy,  from  one  port  to  another,  340; 
distance  tariff  versus  basing-point  system 
in  transcontinental,  418-23 

Train-loads,  Increase  in,  78;  average  of, 
85;  in  Australia,  198;  small,  mean  high 
expense  in  handling,  199 

Transcontinental  lines.  Conflict  of  interests 
between  the  northern  and  southern,  317-8 

Transcontinental  Traffic  Association,  289 

Transportation,  Costs  of,  must  be  lowered 
by  building  waterways,  112;  by  river 
and  canal  not  cheaper  than  by  rail,  120; 
charges  on  cotton  low  because  of  competi- 
tion, 267 

Trans-Siberian  Railway,  Tapering  rates  for 
grain  on  the,  172-3 

Troy,  Ala.,  Rates  made  to,  compared  with 
those  to  Montgomery,  364;  ruling  on, 
reversed  by  the  courts,  365-71 

Truck  farmers  of  America  and  the  railways, 
157-8;  group  rates  extended  to  southern, 

390 

Tiirner,  Sir  George,  Opinion  of,  on  Victorian 
Riverina  trade,  190;  distinguishes  between 
preferential  and  differential  rates,  192 

Tuttle,  Mr.,  on  through  import  rates,  338-9 

United  States,  conflicting  agricultural  inter- 
ests of  the  East  and  the  West,  180-1;  de- 
struction of  land  values  in  the  East,  181 ; 
contrasted  with  Germany  in  history  of  iron 
industry,  268,  274;  four  traffic  divisions  of 
the,  289;  east  of  Mississippi  and  north  of 


the  Ohio  and  Potomac,  290;  south  of  the 
Ohio  and  Potomac,  291 ;  between  the  Mis- 
sissippi and  the  Rocky  Mountains,  310; 
Pacific  coast  region,  313 

Upper  Elbe  territory.  Traffic  of,  40;  with 
Hamburg,  41  N,  42  N 

Upper  Silesia,  traffic  by  railways  and  river 
Oder,  45 

Vanderbilt,  W.  H.,  writes  to  Chamber  of 
Commerce  on  port  differential  question, 
221 

Vermont  Central  Railroad  Co.,  Case  of, 
before  the  Interstate  Commerce  Commis- 
sion, 352-7 

Victoria  refuses  to  ratify  Riverina  agree- 
ment to  protect  business  in  Melbourne, 
190;  puts  penalizing  rates  on  grain  sent 
to  Adelaide,  193 

Water  competition  around  Cape  Horn, 
Extent  of,  314-5 

Water  traffic  increases  in  part  at  expense  of 
railway  traffic,  48;  means  personal  dis- 
crimination in  Prussia,  64 

Water  transportation  impoverishes  the  rail- 
ways, 83 

Waterway  to  be  built  between  Berlin  and 
Stettin,  45 

Waterways  gain  on  railways,  47-9;  in 
France,  127;  length  of,  in  Germany,  in 
proportion  to  railways,  47,  48  n;  indus- 
trial Germany  dependent  on,  51-2  dis- 
crimination against  points  not  on,  53; 
grain  business  and  flour  manufacture  con- 
centrated along,  57;  manufacturers  seek 
location  ^upon,  60;  have  advantage  of 
flexibility  in  adjusting  rates,  62-3  n;  rail- 
ways as  mere  feeders  to,  82;  easier  to 
extend,  than  for  railroads  to  compete 
with,  88 

Wells,  David  A.,  on  rapid  development  of 
West,  215 

West,  Development  of  the,  203 ;  controls  the 
industrial  East,  213;  competition  of,  re- 
volutionizes eastern  agriculture,  216; 
illustrates  complexity  of  problem  of  rail- 
way rates,  310-13 

Wheat,  A  customs  duty  put  on,  by  Imperial 
Reichstag,  72-3 ;  water  transportation  of, 
from  Hungary  to  Bavaria,  151;  cost  of, 
from  Budapest  to  Prague  equals  cost  from 
Chicago  to  Liverpool,  152-3;  decline  in 
price  of,  207;  exported  to  Europe,  208; 
difference  between  London  and  Nebraska 
farm  prices  of,  209  N;  percentage  of  ex- 


486 


INDEX 


ported,  211;  fall  in  price  offset  by  reduc- 
tion in  cost  of  raising,  212;  proportion  of 
exports  of  wheat  and  corn  from  New 
Orleans  and  Galveston,  to  total  from  At- 
lantic and  Gulf  ports,  249  n;  low  prices 
in,  lead  to  corn  production,  253;  average 
annual  production  and  exports  of,  253  n; 
increase  of,  345-6;  break  in  farm  price  of 
wheat,  346;  reduction  in  charge  for  mov- 
ing from  farm  to  Liverpool,  346 


Wheeler,  R.  W.,  on  transcontinental  rates, 

419-20 
Wilson,  E.  P.,  on  interstate  traffic,  425-6 
Witte,  Mr.   de.  Efforts  of,  for  the  export 

trade  in  grain  of  Russia,  170-2 
World's  competition,  98 

Zedlitz  und  Neukirch,  Baron  von,  on  sec- 
ond canal  bill,  iio-ii 


Germany  is  covered  by  a  complete  network  of  railways,  connecting  all  commercial  centres.     The  lines 
are  omitted  from  the  map  to  avoid  crowding  it  to  the  point  of  confusion. 


IMPORTANT    INDUSTRIAL    CENTRES 


NAVIGABLE    INLAND    WATERWAYS   OF 
MIDDLE    EUROPE. 


Germany  is  covered  by  a  complete  network  of  railways,  connecting  all  commercial  centres.     The  lines 
are  omitted  from  the  map  to  avoid  crowding  it  to  the  point  of  confusion. 


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